In a previous article we discuss the various types of ways that you can successfully make money in the collection industry.  In this article we will talk about the pros and cons of 3rd party debt collection and purchasing your own debt to collect on.

  1. Collecting for a 3rd party – this involves finding a business or businesses that need help collecting their debt.
    1. Pros
      1. Generally commissioned based where you can set your own commission levels.
      2. Generally provides a “better, more reliable” source of debt to collect on.
      3. Can provide a steady stream of new accounts to work on.
      4. The 3rd party you are collecting for may assume some of the costs involved in the collection depending on your agreement with them.
    2. Cons
      1. Generally harder to find businesses to refer their overdue accounts to you.
      2. Most businesses have collection departments that handle these accounts.
      3. Success is generally based off of relationships and reputations you have with the business.
      4. Sometimes you may be limited to the stipulations and collection methods of the 3rd party you are collecting for.
  2. Purchasing debt – this involves purchasing a book of business from debt collectors, business, judgments, etc.  In this case, you own the debt rather than collecting it for another business.
    1. Pros
      1. You have the freedom to collect using any methods and means you would like to.  You are not tied to what a 3rd party would dictate.
      2. There are always people out there willing to sell you debt to collect on, so there is no shortage of debt to buy.
      3. No need to find businesses to collect for.
      4. You become responsible for all profits.  No need to share them with a 3rd party.
    2. Cons
      1. Generally the data you get from purchased debt requires skip tracing and extra work to just find the debtor.
      2. You become responsible for all costs.

As a new collection business, you may chose to handle a little of both kinds of debt (that which has been purchased and that which is collected for a 3rd party).  This will depend on how you want to structure your business.  So make the decision that will best benefit your situation, likes, and business savvy.  Decide now whether you will be purchasing debt or collection on 3rd party debt, or maybe a little bit of both.