More often than not, debt collection businesses close their doors because they did not start with a solid foundation of knowing how to generate profit. So ask yourself, “What are my plans to be profitable in my debt collection business?” Those who are profitable in the debt collection world have a solid plan for obtaining quality accounts and a creative plan for working those accounts to produce their cash flow. The most common types of debt collection are the following:
- Collecting for a 3rd party – this involves finding a business or businesses that need help collecting their debt. Generally this type of debt is based off of a commission where you would make a percent of the money collected. If you have fostered relationships with business providers who are looking for someone to collection on their outstanding accounts, this may be a profitable way for you to maintain your collection business.
- Purchasing debt – this one is a little trickier. There are businesses out there that will sell you their “book of debt” containing information for accounts that they are willing to write off. Generally these can be purchased for pennies on the dollar. Once purchased, you become the owner of the debt and can collect on it as you see fit. A word of caution here, make sure that the book of debt you purchase contains valid accounts and enough information that you can be successful. There are lots of risks in planning profitability by purchasing debt
- Purchasing or acquiring judgments – safer than just purchasing debt. Judgments are accounts that have had legal actions taken against them. Once purchased, you own the judgment and can then legally pursue the debt based on state and federal regulations.
- Litigating on debt – whether you own the debt or are collecting for a 3rd party, you can team with a lawyer to litigate or take legal action on the debt. If you have a liking for the legal system and good connections with attorneys, this may be a profitable means for your business.
Regardless of which route you decide to pursue to be profitable in your collection business, make sure you ask around in the industry before you jump in. There are pros and cons to each method and no one method is a “fix-all” solution. Find where you are comfortable and then go for it.