How to Start a Collection Agency

So you are wondering how to start a collection agency.

In today’s credit-hungry economy, a collection agency may be a lucrative business venture to explore.  The benefits (and profits) associated with a collection agency are abundant and varied.

The Advantages of Owning a Collection Agency

First, there are very little overhead and start-up costs needed for a collection agency. Second, there is usually no need for business space, as most small collection agencies are based out of the home. Finally, there is always a demand for collection agencies, as your customer is essentially any business that extends credit.

Businesses that extend credit to customers usually don’t have the time, the money or the resources to go after delinquent customers. That’s where a good collection comes into the picture.

The purpose of a collection agency is to collect legitimate debt for a business. You will essentially be collecting money from past due accounts and charging a fee to the business to accomplish this task.

Steps on How to Start a Collection Agency

The following steps will help you understand how to start a collection agency:

  • Become educated on the state and federal laws regarding collection agencies. This is, by far, the most important step you can take when starting a collection agency, as there are strict state and federal laws in place that dictate operating guidelines, such as the time of day you are allowed to call, what statements you can and cannot make, and what information you must treat as confidential. If you do not follow these strict rules and regulations, you may be found liable!

  • Consult with a lawyer regarding state and federal laws if you are unclear about any guidelines.

  • Use the services of a lawyer to draft a contract between you and your clients.

  • Draft your collection agency’s Articles of Incorporation and pay the related fees. Your business’ Articles of Incorporation, which are filed through your state, will detail the purpose of your company and how your company is to be structured.

  • Next, file an application with the Secretary of State for your particular state.

  • Obtain a local business license.

  • Obtain your Employer Identification Number (EIN) through the Internal Revenue Service. You can apply online at or call them at 1-800-829-4933.

  • Purchase the appropriate software for accounting and business activities. An important software purchase for your collection agency will surely be collection agency software. Examine the different kinds of collection agency software to determine which one best fits your needs.

  • To promote a professional image, set up an internet domain name and a post office box, and develop a company name and logo for your business cards and stationery. It may be best to hire the services of a graphic designer and printing company to produce high-quality, professional-looking business designs and supplies.

  • Set up two bank accounts. Use the first as your business account (one that will be used for general business funds) and the other as your trust account (into which your debtors’ funds are placed).

  • Purchase necessary phone equipment, home office furniture and supplies, including headsets, filing cabinets, stationery, envelopes and a high-quality printer.

With the knowledge of how to start a collection agency in your arsenal, you can soon begin helping companies secure their delinquent debtors!