How to Start a Home Based Debt Collection Agency

by Fraser Sherman; Updated September 26, 2017
Mature woman in  home office, portrait

When you try to collect on a debt, you may face indignant refusal, lies or tears. The Association of Credit and Collection Professionals, or ACA, recommends working in the industry before starting your own collection service, so you have hands-on experience of what debt collection is really like. ACA says you must have good people skills: You'll get the best results negotiating with debtors, not bullying them. Because most of your contact with debtors is by phone or letter, it's an industry well-suited to a home business.

Save Some Money

Working from home can cut your business expenses to the bone. But even with minimal overhead, it may be a while before your new agency turns a profit. The ACA estimates the first few months you'll be working 10 to 12 hours a day, six days a week, which will cut into your ability to work another job. Having cash reserves to tide you over for the first few months is essential. The ACA recommends you also line up several clients before you make the leap to self-employment.

Have an Online Presence

More than half of the debtors called by a collection agency will look the agency up online, the Branding Arc marketing firm reports. If a debtor looks for your firm and doesn't find it, he may assume you're a scam artist and refuse to negotiate. Having a website gives you credibility. When writing about your services on the website, sound professional and respectful, not ruthless. If you come off as someone who'll hound debtors relentlessly, creditors may decide hiring you would be bad for their image.

Get Licensed

Research your state's requirements for collection agencies before you take on a single client. Many states require collection agencies to get a license. Some local governments, such as New York City, do so as well. Even if you're not based in New York City, you need a city license if you contact a debtor who lives there. You might also have to post a surety bond as a form of insurance: If you mishandle a debtor's payments, you forfeit the bond.

Research the Law

Federal law and the laws of many states regulate what you can do to collect on an account. You can't threaten violence or threaten to have someone jailed for debt. You can't call at 2 a.m. just to harass a debtor into settling. If a debtor tells you to stop contacting her, you have to obey. It's illegal to pretend to be someone you're not -- a cop, say -- or to publicize that someone has unpaid debts. Stay within the law or you could face fines and lawsuits.

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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