How To Start A Collection Agency

I’ve been contacted about three times in the last month from folks asking ‘how do I start a collection agency?’.  It’s a great  question, and I’m happy to help – but what is just as important as starting it is how it will run, and how you present yourself to the outside world.  I’ve worked for a number of small or start-up agencies over the years, and some were wildly successful – others have failed, and I’ll share what I’ve seen that works.

Before You Start Starting

So, you’re sitting around a coffee table and you have just brainstormed your back-of-the-napkin notes, and you are planning for your corporate juggernaut that will take the collection industry by storm!  This is the time to figure out some very important things.  Aside from planning on paper, remember how you feel right now – the enthusiasm, the willingness to take risks, the clear vision and willingness to roll up your sleeves – this is something you need to bottle and keep handy in the months and years to come.  But back to your scribbled notes on a napkin …

 You can built a formal business plan, write down your commandments, or brainstorm a lot of bullet point notes.  Any format is good, but you need to have a roadmap for your agency.  What industry will you serve?  How will you set yourself apart from your competitors?  What tools will you need to build or purchase?  How big do you want to get?  How will you make money?  All these questions should be addressed now – not necessarily solved, but planned as mileposts to pass as you grow and can tackle issues.

The other thing you will need to do is put some infrastructure in place before you even plan to open your doors – think about how you will solve the following issues:

=> Office Space – many provinces or states require a proper place of business.   Where will you operate from now, and later as you grow?

=> Telephone Service – what’s your plan for phones, toll free numbers, long distance, and call handling?  You can start thinking now about call recording and predictive dialing, but these aren’t necessarily things you need to solve on Day One.

=> Collection Software – how are you going to record files, calls, payments, disbursements to clients, and interact with the credit bureaus and multiple staff?  You can look at off-the-shelf software or building your own with a little database know-how.

=> Marketing Presence – this would include your company webpage, your sales presentations, your foray into social media, and everything that is outward facing.  It’s not just about setting up a static website on Wordpress and forgetting about it, it’s about how you are going to make your company appear vibrant and interesting.

=> Payment Streams – collections is all about handling funds.  Have you opened your trust accounts, and set up the ability to take EFT payments, credit cards, payments by mail, or set up online bill payment options?  How will you report these payments to your clients, and how will you disburse funds to them?  Remember as you grow, many clients will want gross remittances on a weekly or even daily basis – be prepared to adapt for your future clients’ needs.

=> Growth – you need to plan for growth now, because without growth, you are dead in the water.  How are you going to land clients?  How are you going to hire staff?  If the big golden collection portfolio comes in, how are you going to handle it?  Don’t put on rose-coloured glasses, because initial growth might realistically be calling local dentists for business, but you want to think about how you are going to grow.

=> Profit – with growth and revenue, you need to run a profitable operation.  That means looking at all your plans above, and realistically deciding what you need to start, not cutting edge technology and million-dollar office spaces.  Unless you are privately funded, your initial office might be something modest with a Magicjack telephone system and Microsoft Access database, and that’s okay, as long as you plan to improve your infrastructure as you grow.

=> Licensing – once you have everything else in place, in all the Canadian provinces and in most states, you need a collection license for your company, and may need a surety bond or business insurance as well.  Make sure you are registered for tax purposes in your province or state.  In some places (Ontario, British Columbia, Michigan, etc) you will have to write an exam to prove you understand the collection laws for that area before you can receive your license.

Taking The Leap

So you have your plan, and you are ready to go!  Bank accounts are set, the office has furniture, and your license is framed on the wall.  Now you are ready to start.  Are you prepared?

In my opinion, to make this work, you need to jump in and push your company to success with 100% effort.  You can’t do this part time after hours from your day job.  You can’t divide your attention between babysitting or raising small children in the home or your dog-walking business.  If you want to make your business happen, you have to give your time, effort, enthusiasm and brainpower to the company without reservation.

Please don’t starve to death or give up after 30 days.

Have a plan on how you are going to cover your initial overhead – that’s you!  You need to pay your rent and buy food, so you will need to have savings, an initial investment or line of credit, be prepared to live off your spouse’s income for a while, or live a very modest existence.  It may take several months to build momentum, land the initial clients, and start a revenue stream.

Please think about how you will attract clients and have a solid plan – I know a fellow who folded his agency after three months because he spent all his time worrying about licensing, and when the doors were open, he called me and asked. “So how you do get clients?” That my friends, is the ten thousand dollar question.

Building On A Foundation

So, assuming you get to the point of paying your rent, eating better than ramen noodles, and the lights are still on after a few months, you’ve established a self-sustaining company!  Congratulations!  However, you need to think NOW about how you will expand and grow.  That may be your first staff member you hire beyond yourself, or handing the reigns to your existing staff so you can focus on big picture challenges.

Don’t be a control freak boss, and don’t be afraid of your own shadow – this stage is often where an agency owner gets to 3-5 staff, and then stalls in their growth because they become afraid to trust their team, they become stingy with their modest profits and forgot about that wild-eyed enthusiasm they had when they were scribbling on a napkin (I told you to remember that feeling, about sixteen paragraphs ago … this is why I said that).

Go back to your business plan and look at it regularly – are you growing to capacity in your office?  Did you have a plan to upgrade your software?  Are you going to open a second branch or move your office to a bigger location?  Are you going to start merging or acquiring smaller agencies?

Local Requirements

So, depending where you are, all this advice might be great in general, but there are requirements in specific.  This is not a comprehensive list! But keep these items in mind depending where you are, or where you want to license your company.

BRITISH COLUMBIA – You must write an exam, and your staff must as well.  The province will run a criminal background check on you as a requirement of licensing.

MICHIGAN – You will need to write an exam in Michigan, and have a separate trust account for collections in that state.

NEWFOUNDLAND – You must have a place of business in the province where consumers can visit and review their account, and a toll free number for customers to call back.

NEW BRUNSWICK – You will need to have a local police background check done and send it in with your license application.

NOVA SCOTIA – You must write an exam to license your company.  This exam doesn’t necessarily need to be written in Nova Scotia, but you will need to make an appointment at one of their approved locations.

ONTARIO – You must write an exam to be licensed, and have a physical location operating in Ontario open to the public – the physical location is a new requirement and out of province agencies may find this requirement difficult to meet.

QUEBEC – You must have a registered French name for your agency through CRAC, a QST tax number, and a physical location in Quebec to make calls within this province.

TEXAS – You will need a penal bond, and if you plan to use a predictive dialer you must have a special license to operate it in that state.

Conclusion

I am a strong believer that there is more than enough business for everyone – I think new agencies and innovative ideas drive a competitive market and make us all better.  I think that entrepreneurs are brave souls that should be admired, and I also believe in social karma so those that we help will remember kindness and support in the future, and should be viewed as potential business partners mentors and resources to respect, not competitors to be feared.

There are a lot of folks who say that starting an agency is all but impossible -- I think they are wrong.  It's easy to start an agency, I think it's hard to maintain and grow one.  Be prepared for long hours, challenges and surprises you never expected or planned for, and a constantly changing landscape of requirements.  As well, be prepared to work with some amazing clients and co-workers, feel the thrill of accomplishing your goals, and the cocked eyebrows and quizzical looks of the other business owners in your industry as you set new and innovative trends.

If you are looking at starting an agency, or you are trying to license your existing agency in another province or state, feel free to contact me – I’ll happily share what I know.

Thanks kindly,

Blair DeMarco-Wettlaufer

KINGSTON Data & Credit

Cambridge, Ontario

226-946-1730

bwettlaufer@kingstondc.com

Collection Tip - How You Say Hello

First impressions are important in most business deals, and the collection on an account (business or commercial) is no different.  In this day and age, collections is performed now over email and by SMS text, but the telephone is still a primary tool in the communication about a debt.  First impressions really start when someone answers the phone, and says 'hello'.

If you are working in a collection department and your phone rings, how you answer your phone may be the first step towards building a relationship with a consumer or company, and working towards a collected account.

In my opinion, you should not sound brusque or stiff to put someone's guard up right away, and should not sound too casual or subservient.  Certainly, it shouldn't be misleading either -- that's a collection agencies act violation!  Here are examples of things I don't think are ideal greatings -- and I've heard them from collection agencies over the years ...

"Dave here"

"Susan speaking, how might I help you today?"

"Legal Department"

"What is your name and telephone number?"

"Mr. Williamson speaking, what's your account number?"

Ideally, I believe a greeting should have a small amount of authority but create an open environment for conversation.  It should not rush the later parts of the call (looking up the account, determining if the person is going to pay voluntarily or not, and definitely discussing consequences for non-payment).

"Salina Rose speaking, may I help you?"

It can be that simple.  If you use your first and last name, you create a sense that this will be a somewhat formal conversation, and if you lead with an opening question, you are inviting the person calling in to share their issue and imply (and hopefully follow through on) that you have intentions to help them resolve their account.

Now, you *may* have to state other things, like the mini-miranda when speaking to a consumer in a state like Georgia.  That can be dealt with in the call menu before the call, or immediately following the greeting -- please consult your state laws and the compliance requirements of your clients.

There's time after the greeting to get into the rest of the call, like objections, consequences, payment terms, deadlines for follow up, and so on.

If you have questions about telephone etiquette relating to collections, whether you are working in a third party collection agency environment or work directly in the accounts receivable or collection department for a creditor, I'd be happy to chat -- feel free to give me a call or drop me an email.

Thanks kindly,

Blair DeMarco-Wettlaufer

KINGSTON Data & Credit

Cambridge, Ontario

226-946-1730

bwettlaufer@kingstondc.com 

The Collection Agency Whiteboard

I was recording a radio interview on Friday with the trustee Doug Hoyes, and we spent some time talking about how our business models work.  One of the topics we ended up talking about was revenue KPIs, and I touched on the collection agency whiteboard.

Almost every agency has one -- it's a big board at the front of the office or call centre, that allows collectors to track their revenue for the day, or the month-to-date.  On the surface, it's a great idea because it's a gamification of revenue generation, and it can possibly be a motivational tool -- "look, Bob just put $800 on the board!  Look, Alice has hit her monthly target, and there are 7 business days to go!".  Unfortunately, many agencies don't use it properly, and it causes more problems than it solves.

Let's face it, collection agencies mostly measure success or failure based on revenue generated -- but the success of an individual collection agent is more than just gross revenue, and there are a lot of other factors that play into an individual's success -- the volume and quality of delinquent paper listed by a client, the target liquidation of said paper, to start.  It's also dependent on other employee's efforts -- what if manual data entry of new business or payments is behind?  What if documentation isn't being requested from the client by the customer service team?  What if the IT department doesn't import the direct list in a timely fashion?

Outside of revenue, it's also about what the staff members do above and beyond revenue generation -- are they team players who help everyone around them?  Do they garner positive Google business reviews?  Do they have positive relationships with clients?  Are they part of a positive work environment and bolster team morale?  That's not necessarily something that can be measured by a whiteboard.

If a whiteboard is the central measurement of success, and too much focus is placed on it, it may foster an 'everybody for themselves' attitude, or reinforce an elitist attitude by superstar collectors that far exceed everyone else.  It can beat down staff who aren't meeting targets, and work in a high-turnover environment to crush office morale.  If it's used in conjunction with prizes, giveaways, or other incentives, it may encourage inaccurate notelines or transferring of files away from other co-workers.  In other words, it may reduce the company spirit to a free-for-all over numbers.

If you work in an agency and use a white board, and use it sparingly, or with moderation in conjunction with other tools, that's awesome.  If you work with team leaders or management that understand that everyone on the team is a human being working in a big environment with many variables, then it can be used as a KPI rather than a bludgeoning tool.

Our office doesn't have a whiteboard, per se, but every collector has the ability to pull the daily or monthly revenue statistics at a push of a button from their collection software screen, like their own personal little whiteboard.  Sometimes we will email out a snapshot of the day or month or performance on a specific client to our multiple branches and discuss where we sit versus expectations.  At the end of each business day, we do generate a formal company report to measure and share revenue, profitability, manpower or equivalent FTE assigned to each client, and factored revenue per FTE per client, and that report is shared with everyone in the company.  But it's just one tool out of many, and only one set of KPI results.  We try to not make it invasive, demeaning or an absolute measurement of how we value our team members.

If you have anything to share about your experiences with a whiteboard in your agency, I'd be interested to hear about them.  If you want to talk about ways to make it a positive tool that enables team members, I'm always willing to exchange ideas and thoughts.

Thanks kindly!

Blair DeMarco-Wettlaufer

KINGSTON Data & Credit
Cambridge, Ontario
226-946-1730
bwettlaufer@kingstondc.com