The Steps to Starting a Successful Debt Collection Agency

July 7, 2021

The words ‘debt collection’ and ‘debt collectors’ may hold negative connotations for many people. However, in reality, professional and reputable debt collection agencies are salvation to many large and small businesses that must collect payments owed by individuals or businesses.

Running a debt collection agency is by no means an easy choice of profession, but it can be successful, lucrative, and even rewarding.

While the process of launching your business can be intimidating at first, you’re most likely to be successful if you’re familiar with the initial steps and requirements before you get started. This step-by-step guide should help you start your own successful debt collection agency. Read on for exclusive tips.


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Step #1: Know the rules, and follow them.

Business owners in every industry have to be careful, but debt collectors may find themselves under particular scrutiny. Remember, if you’re found to violate any rules or regulations pertaining to your business, you can’t claim ignorance as a defense.

Regulations vary between states, and sometimes counties or cities might have additional laws about how you do business. Like New York City does, your city’s governing body might have a helpful guide to these laws. Make sure you know the rules, inside and out, before you start. Your first step should be to retain a trusted attorney with experience in this field to help you navigate the law.

The laws governing debt collection businesses can be complex, and it seems no detail of your business is too small to legislate. Depending on your location, there may be laws about what time of day you are allowed to call debtors, which steps can be taken to collect different types of debt, and even which words or phrases to stick to when talking to debtors. Some debtors record their conversations with collections agencies, so make sure you’re recording them, too.

While it may sound like micro-management, a whiteboard in the office with phrases and wording to be avoided could save your business from costly mistakes.

Step #2: Getting licensed

As the owner of a debt collection company, you will need to be licensed and bonded according to the laws of your state. Each state has different licensing requirements, so make sure you know the law in your state.

Your best resource in getting licensed is usually the website of whichever governing body regulates these licenses. Check with your state and local government officials to make sure you know the rules.

Step #3: Get bonded

In addition to your license, your state may also require you to obtain a surety bond. The collection agency bond, also known as a third-party debt collector’s bond, protects the public, and the state, in case of noncompliance or proven misconduct on your part. A few states, notably Texas, require you to get bonded even though they don’t require a license.

Your surety bond works as a line of credit for your business. If a successful claim is made against the bond, the surety may compensate the claimant up to the full amount of the bond. Your business is legally obligated to repay the surety in full for any claims. A successful claim can be devastating to a business’s finances, credit, and reputation. Good business practices are the best way to avoid claims entirely.

While the bonding requirement might seem like an additional hassle, getting bonded can work for your business. The best surety agencies work only with A-rated and T-listed bonding companies, so make sure you work with a reputable surety bond producer.

While there are many other things to consider, these are some of the main initial steps you need to consider before starting your own debt collection agency.

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