How to Start a Collection Agency From Home

by Melvin Richardson; Updated September 26, 2017

A collection agency is a company used by mortgage lenders, credit card companies, financial institution, hospitals, doctors' offices, private individuals and apartment complexes to collect their past due loans or outstanding debts. Collection agency representatives will send letters, make phone calls and sometimes initiate legal action to get debtors to pay. When a judgment is made, it could garnish the debtor's wages or bank account. Collectors also report debtors' account to the credit agencies as past due. Getting started as a collection agency out of your home requires having certain equipment and abiding by certain laws.

Step 1

Read the Fair Debt Collection Practices Act. This act was passed by Congress in 1978. Collection agencies must obey its rules and regulations when they are performing collection activities. A collection agency can only make phone calls to debtors between the hours of 8 am and 9 p.m. When contacting third parties, collection agencies are not allowed to mention that they are collecting a debt. Third parties are contacted only to obtain location information regarding the debtor. Becoming familiar with this document will help reduce complaints and lawsuits by past-due debtors.

Step 2

Find out what the state laws are in your particular state. You need to obey the county, city and state laws where you are doing business. This will help your business avoid fines and penalties. You also need to have the proper licenses to do business. Always check with your particular state to see what is needed. You will need an employer identification number, which can be obtained by calling the Internal Revenue Service at (800) 829- 4933.

Step 3

Designate an office space in your home to perform collection activities. It is a lot easier to do business in an office because there will be fewer distractions. All of your tools, equipments and supplies should be at your fingertips.

Step 4

Determine what equipment and tools you will need to do business. You will likely need a phone line, Internet connection, fax line, computer, headset, desk, file cabinet, stationery and pens. You will also need a website and a name for your business.

Step 5

Get financing for your business. If you don’t have all of the necessary equipment, you can finance these items with a credit card. Make sure your credit card has a credit limit large enough to pay for the equipment you need.


  • To get business in the beginning, offer to collect on second placements. These are accounts that another collection agency has already tried to collect from with no success. These accounts will be difficult to collect from, but if you collect any money on these accounts, some clients may be enticed to forward fresh accounts to you based on your success.

    Collection agencies usually charge about 25 to 50 percent of what they collect. You may need to negotiate a lower fee in the beginning to build up a clientele.

    The services of an attorney may be needed with some of the legalities.

    To get business, you will need to contact banks, credit card companies and doctors' offices to let them know you are in business.


  • Keep your expenses low until you have cash flow coming in; otherwise, you could run into a cash-flow shortage.

    The Fair Debt Collection Practices Act states that a debt collector cannot harass or abuse a debtor during collection activities. Loud cursing and swearing or making derogatory remarks designed to harm someone’s reputation or character could be considered a form of harassment and abuse. Collectors also cannot threaten anyone with physical harm or violence. Debt collectors cannot make false or misleading statements such as telling a debtor she will go to jail if a debt is not paid.

About the Author

Melvin J. Richardson has been a freelance writer for two years with Associated Content, and writes about topics such as banking, credit and collections, goal setting, financial services, management, health and fitness. Richardson has worked for several banks and financial institutions and gained invaluable experience and knowledge. Richardson holds a Master of Business Administration in Executive Management from Ashland University in Ashland Ohio.