By Emily Faracca – On
The role of a collection agency in the economic food chain is not going away anytime soon. Don’t just take my word for it, though.
As of February 2019, there were billions of dollars in defaulted student loans going uncollected. A record 7 million Americans have reached serious delinquency status on their auto loans, meaning they’re at least 90 days behind on their payments. And most impressive of all, total US consumer debt sits at over 4 trillion, and has increased nearly 21 percent over the last four years.
While the common perception of debt collection agencies is sharks preying on the weak, the reality is, they exist because many people are unable to make their payments on time. Getting out of debt can also be an extremely gratifying feeling that results in less stress and more financial freedom.
If you would like to break into this market as a debt collector and are wondering where to start, keep reading. We’ll walk through everything you need to know before you open your doors and dial up your phones. If you’d like to skip to something, you can click on any of the topics below.
There are few guarantees for success in the debt collection industry. It is volatile at it’s best. There is much more to it than buying debt, collecting on it and turning a profit. One certainty is that certain types of debt may be more difficult to collect.
For example, credit card debt. Even though there is a lot of it, many agencies see that as easy money and go after it. If every agency thought that way, there would be fierce competition and lots of other types of debt going uncollected.
When you are first starting out in debt collection, one of your organizational goals should be to find your “debt niche.”
From our own personal experience, we’ve seen that agencies who “make it” have a very distinct niche where they collect.
You can choose to be as granular as going after a certain balance. Knowing your system well enough to predict the balance that is collected on most efficiently can streamline efficiency very well.
Some examples of niche debt include:
- Bail bonds
- Small local business accounts
- Even casino checks!
In small claims court on any given day, you can find small business owners and vendors trying to collect consumer and business debts. Offer to purchase those accounts. Ask for a portfolio. Be creative in how and where you look for debt.
We believe that rather than trying to become a “jack of all trades”, it’s better to be a master of one. Get really good at one specific industry, balance, or otherwise.
Once you have worked out where you want to look for debt, it’s time to start buying some! Here’s what you need to know about where to look for debt.
First, it’s important to understand the difference between a debt buyer and a debt collector. If you’re looking for clarification, click here.
Step 1: Choose Your Industry
As we discussed, you’ll first need to determine an industry line of debt to start. You can rely on your own experience for this if you wish. For example, if you have a lot of experience with or knowledge of the auto industry, start there when looking for a portfolio.
Step 2: Start Small
We recommend starting with a low-volume portfolio when first starting out. The nice thing about the industry is you can start with $1,000 to spend and end up with anywhere between $10,000 to $30,000 worth of debt.
Use your profits from that batch to purchase larger portfolios as you grow.
Step 3: Know the Risks
There’s a reason those accounts went to collections. Understand that many debt portfolios provide little, if any profit for debt purchasers. Lenders also know they can’t sell debt to just any collector, and not all banks choose to sell debt to collectors at all.
Some banks have begun limiting who can bid on their debt portfolios, and the contract process has become rigorous.
Here is a non-exhuastive list of where to purchase debt:
(Disclaimer: This list contains debt buyers belonging to the RMA, and is intended for informational purposes only.)
These are just a few of the hundreds of places to buy debt. If you prefer to purchase directly, there are options for that too.
HOT TIP: “Join a nonprofit industry trade group such as the Debt Buyers Association to network with others in the same business. Learn tips and strategies that work for other groups and connect with other business owners for support and partnerships. The DBA requires members to adopt a code of ethics that ensures the industry remains both profitable and respected. Membership could help your business get a foothold in the market.” - Pocketsense
Once you’ve worked through a couple portfolios, you might find yourself needing some assistance. Here’s where our next topic of discussion comes in.
At some point, every employer, regardless of industry, must face this challenging decision. When you get to a point of desperation, however, it’s important not to do anything impulsive.
Here are the key points to keep in mind when looking to grow your agency:
- You Know Exactly What the New Hire Will Do
- You Know Exactly What Skills the Hire Must Possess
- You Know That the Position Will Generate Revenue
Let’s walk through these one by one.
- You Know Exactly What the Hire Will Do
We implore you - figure out this gap down to a list of very specific responsibilities. Identify exactly where you need help - the most obvious would be someone to help you dial numbers, but consider other gaps that could help you out. Someone to work solely on skiptracing? A compliance manager? Or even a partner with shared responsibilities might be the best place to start.
You need to have this nailed down so when you put your feelers out, it will be easy to make decisions.
2. You Know Exactly What Skills the Hire Must Possess
There are a million different skill sets that could benefit a collection agency. A jack of all trades may not be the best choice. The clearer the set of responsibilities you lay out, the more accurately you’ll find your fit to be. If you want someone with experience working in a collection agency, make sure that’s specified and hold to the standard. If you want someone who has a working knowledge of compliance measures, make that clear and test them on it.
3. You Know That The Position Will Generate Revenue
This is more logistical, but should be part of your hiring process. Keep in mind that your company likely won’t grow until you get some help. And growth is something you probably want. So don’t be afraid to hire, but make sure the position will in some way affect the bottom line, especially at the beginning. If you are hiring someone to make calls, great. Alternatively, invest in a software as a “hire” that can help you dial faster. The cost of a software would probably be less than a yearly salary.
Whatever slot you decide to fill, be sure that the skill set is a potential match. Then, we recommend asking these three questions during the interview process:
- What do you think a debt collector does, and why is it important?
- If you were in my position, what skills do you think would be most important to the role you’ve applied for?
- What would you do if you simply could not get in touch with a customer who owed money?
This should help you weed out unlikely candidates who:
-have no working knowledge of the industry
-will make clear to you whether they have the right skills and finally,
-depending on their answer to question three, may be more of a risk to your business by putting your compliance to the test.
Your collection agency will eventually need the following types of software to enhance your profitability:
A Reliable Firewall
Expect to pay between $600-$1500 depending on the make and model.
You should be looking for a firewall that contains Intrusion Protection Services (IPS) that will scan for too many attempted logins and alert you regularly. Look for a robust, built in anti-virus package, as well as content filtering.
Keeping customer data organized is going to be one of the keys to success. In addition to compliance measures like maintaining a DNC list, you’ll want to notate accounts regularly to manage activity.
You have several options for CRMs built specifically for collections. Here are a few:
When you are first starting out, you should be looking for a dialer that is easy to use, powerful and reliable. We recommend Arbeit Dialer. Our dialer comes fully loaded with features like:
- Live monitoring
- Software integrations
- SIP to SIP Linkback
- IVR Capability
- Custom messaging
And best of all, it was designed by former collection agency owners. That should tell you that it was designed with functionality and power in mind.
In addition to these softwares, there are a few general IT tips that can help you succeed:
- Have your computers secured with a password
- Make sure a policy is in place to automatically lock the computers after inactivity
- Never re-open an excel file once it has been saved as a CSV. (This will corrupt columns)
- Avoid allowing excessive streaming (sites such as Spotify, YouTube etc. will take up a lot of bandwidth.)
- Make sure your internet connection is reliable
- Regularly Google search your phone numbers for bad reviews online and adjust accordingly.
Now that your IT systems are good to go, let’s talk about credit reporting.
If the creditor has not already done so, as a collection agency, you have the option to report the debt to credit bureaus.
In order to report bad debt, you’ll need to establish a Data Furnisher’s or Service Agreement with each credit bureau (Equifax, Experian, Innovis and TransUnion.)
The Service Bureau lays out specific instructions for this:
- All businesses reporting to the bureaus, must meet the minimum reporting requirements established by each Credit Bureau.
- Once you have established an agreement with the bureau(s) and meet their account minimums, then you are ready to order Credit Manager software to accurately report your customers or debtors accounts using the Metro 2® format layout.
- Install Credit Manager software on your computer.
- Enter or update your accounts using the user friendly edit screen or import your accounts electronically using the Import function.
- The intuitive Compliance Manager and built in help functions, ensure your accounts are compliant with the latest FCRA/ECOA/FCBA/FDCPA regulations and the Metro 2® format standards.
- With the built in "Send" interface, export your accounts to the bureau(s) using SFTP (secure FTP), HTTPS (secure web browser) or removable media. Repeat steps 5-6 for monthly bureau updates. It's that easy!
Once you decide what kind of debt you’d like to focus on, it may limit you to your own state or one certain state. Before you get started collecting, you must get licensed!
Too many lawsuits are just that easy to avoid.
According to Cornerstone Support, each state often has its own collection laws and requirements. On top of that, states are continually changing statutory regulations and application requirements, making things complicated and time consuming.
For agencies seeking nationwide compliance, this creates a gauntlet of regulations that is not only confusing, but under the wrong circumstances, LIABLE.
Because the process can be overwhelming, we recommend working with a third party to handle state licensing. There are many experts in the industry, including Cornerstone Support , who are seasoned professionals and will keep you from liability when you are contacting consumers in other states. They keep your license accessible.
Protecting your agency by getting licensed is a vital part of the process, and an easy way to avoid a lawsuit. More and more, consumers are wary of debt collectors and know what to look and listen for when they get a call. One of the first things they may check for is that you are licensed, and they may be quick to file a lawsuit if you’re not.
Skiptracing is the practice of gathering data on the whereabouts of someone who owes a debt. Collection agencies make their money on collecting debt, so when they are unable to find or get in contact with someone who owes a debt, it is important the collection agency locates them.
However, with so much data available today, it's difficult sometimes to sift through it all. Here are three ways you can improve your skiptracing:
1. Use Google Effectively
When trying to find someone online, Google is a great place to start. However, it is only useful if you use it effectively. Although this may seem as if it is a very obvious tip, it's very important. When searching for someone, if you just type their name into google, you will end up with millions of results. Using Google efficiently will give you the best chances to find the person you need.
One way to use Google effectively is to search for professional licenses that the person may have. In many states, you can find a professional license online. This will often lead to a state-created profile containing some of the information you may need.
Like professional licenses, online resumes posted to job sites are a great way to gather information on someone. This not only gives you information on where they may work presently, but you can gather recent data if the resume was recently updated.
2. Use Government Sources
When you are attempting to track down someone's whereabouts, it could be beneficial to use government sources to quickly gather information on a person's whereabouts. One great source to use is the US Postal Service. A Post Office can supply you with a forwarding address should they have one. The State DMV is also a great place to get a person's new address. The DMV is notified of any change of address and will have that on record.
3. Check with the Company Who is Owed the Debt
Often times, the company that owed the debt has a lot of the information needed to find someone. Whether this is through credit applications, contracts, personal guarantees, orders for services, online or in-store orders, and even emails. This information can supply collectors with a lot of useful data to help track down the whereabouts of the consumer. Even if this does not give you all the information needed, it's a very useful start!
Debt collecting is a tough job, especially when the debtor moves around frequently. It is important to use all available to you when using your skiptracing tactics. Many agencies devote 3 or 4 agents per day to purely skiptracing efforts.
Eric Neal of Neal & Associates says that all collectors can skiptrace to a point, but it’s perhaps not what they do all day. He says to improve your skiptracing, agencies should:
- Know their files, and the type of people they are going after
- Exercise time management, and know how much time to spend on an account - know when to stop and how far to go.
It’s almost inevitable that you will be hit with a lawsuit. We know and you know that you operate perfectly and compliantly (wink). But just because we know it, and you know it, doesn’t mean the courts will take you at you word. As a result, you’ll need to have robust compliance procedures in place. Courts often ask for this documentation if and when you are taken to court by a consumer. Here’s the basics of what you should be able to provide:
- That you obtaining express consent for live and prerecorded calls made with an ATDS to wireless numbers
- That you state federal and state disclosure requirements
- That you adhere to calling time restrictions
- That you honor revocation of consent made through any reasonable method
- That you honor any DNC requests made in writing
- That you avoid harassing a consumer or abusive acts
- That you maintain clean records as required
- That you have a consumer complaint and dispute resolution process
Once again, there are many resources at your disposal to stay informed on up-to-date compliance practices. We wrote a complete TCPA Compliance Guide with a downloadable checklist for agents to reference. There are also businesses that are dedicated to providing coaching, training and resources to agencies to remain compliant.
The best route you could possible take would be to get in touch with a TCPA or receivables industry expert attorney. And the best place to get in touch with a TCPA litigation expert is by joining organizations like the RMA or ACA. These memberships will provide you with access to trusted and reputable sources for legal advice and counsel.
Before we dive into this strategy, let’s briefly return to the subject of what software to use.
We recommend a broadcast dialer to assist with inbound calls. A broadcast dialer can dial out thousands of numbers per day and in turn, get you calls coming in. The calls that come in are much more likely to get you a payment - you wouldn’t go to a car dealership unless you wanted to buy a car.
Our recommendation is Arbeit Dialer - it was built by collection agency owners so it’s extremely easy to use and powerful.
Next, you’ll need software that allows you to make custom dispositions. We recommend Arbeit Click - it’s a TCPA manual dialing solution that keeps you compliant and allows you to easily organize data.
Here’s one strategy that filtered out 90 percent dead numbers and doubled collected amounts for one agency who used it:
When the agency gets a new file that’s been fully skipped and back from batching, it’s expected that they may not touch all the numbers on that file. They may even spend a lot of time on a number that will never yield a payment. Many of the numbers are disconnected, go straight to voicemail, or simply wrong.
This agency used Click to develop a solution for this time waster. When they get a new file, they run that call list through Click. Then, they use Click’s custom dispositions to create a “Good Numbers” status. (An example of good number would be one that ID’s the person you are looking for on the voicemail.)
Because of Click’s second layer of human intervention, the agents are the ones that act as voicemail detection – and they ARE smarter than the robots that normally do it. Therefore, the agents are able to label a number as a good number with 100 percent accuracy.
Once that’s done, they have a list of only “good numbers” to call. They find it much more efficient than continuing to run numbers they get no answer on over and over again.
It’s more than just a way to clean up accounts. In fact, according to data from just one batch of numbers, the agency was able to eliminate 90 percent of numbers that were “dead” (disconnected, incorrect or unanswered.) Using this strategy, agents didn’t waste time dialing those dead numbers.
By using Click this way, the agency saw their agents double their amounts on a per collector basis.
This is just one example of a strategy your agency can use to get creative with methods of collection. Talk to other agencies and see what they are doing!
Former top collector Alex Villafranca shares some of his experiences as a debt collector along with great tips that he used to become a top collector.
- It took Alex about two or three months to become the top collector.
- "I was only working about 4 hours a day because I was going to school. That was a huge advantage for me because I did not dread going to work. I also wasn't getting tired or burnt out from looking at my computer screen all day.
- It's not about working "smarter" vs. "harder"
- “I would say I worked harder and smarter, I think if you don't do both, you cant achieve anything. First, I would work smart by constantly evaluating every call that came in. So when I answered a call I got an idea of how the person was on the call. I would use that to judge who the best person was to handle that call in case I could not close it. I was aware of what I was and wasn't good at. For example, if they were a male who was old enough to be my dad or grandfather, I probably wasn't the best person to handle that. I would start it, and then try to get that switched over to someone else and quickly as possible.”
- Environment plays a huge role in success
- "Creating some sort of team environment in an agency is extremely important I think because not everyone is amazing at everything. Tell your collectors to do this when they answer the call, evaluate the call and decide if they are the right person for that call."
- Take full advantage of inbound calls
- "My favorite thing was incoming calls, we used a dialer and this is where the work hard came in. If no one was calling in, I would pick up the phone and make a call, but I was always ready to answer that call. That's how working smarter and harder play together. If someone called in, that's just like a silver platter in front of you. You know what they say, "no one walks on a lot unless they want to buy a car". If someone is calling in you have a way better chance of closing than cold calling."
- Practice, Practice, Practice!
- "I would constantly practice on my own. In the car on the way to work or the way home, I would always be practicing. I would practice my talk off and be talking to myself but I think it would work. I felt more comfortable with my talk off and I think that's important. Setting up some role-playing time for your collectors. Even just letting them do it on their own because it's intimidating for someone, especially if they are new to do the role-playing in front of others. Let them get comfortable with their talk off and ease into it."
Here are some other tips we’ve gathered from the pros:
View every interaction as a negotiation.
Stay calm, polite and professional.
Have a concrete minimum and try to stick to it!
Confirm every deal in writing.
Remember to follow up!
To get insight on this, we wanted to speak to agencies who are consistently rated positively, and who see high rates of retention.
First, we spoke to Jeff DiMatteo of American Profit Recovery.
His agency has been rated one of the best places to work 10 years in a row - so we know he is doing something right! Here were the main points he suggested for emphasizing a culture of motivation and job satisfaction.
- Create a home for employees where they can enjoy coming to work. It's a tough industry to be in but if you can make them enjoy coming to work that's half the battle.
- Have an open floor and open door policy where employees feel free to communicate and have management to talk to. It shows that their opinion means something.
- Focus on helping not only your clients but helping consumers. If your collectors and collection associates go into it with mind frame, then it goes a long way to retaining your employees.
- Make sure to spell out what collectors will be doing day to day in job interviews. This job just isn't for everyone.
- Use referrals as a source of new recruits. When people get referred in, they know what they're coming into. Debt collection is tough, and they know what to expect.
- One of the most important qualities to succeed as a collector is patience, empathy, and listening skills. Our industry's gone a long way in the past 5,10, 15 years from more telling people they need to pay now to more of a customer service approach. Make sure collectors understand this.
- At career fairs, you have to have the same energy at the fair that candidates are going to expect at work. That's going to attract people to your booth and make them excited to work for you.
- As a way to improve employee engagement, run contests, have employee appreciation week, run surveys and have one-on-ones to make sure everyone is happy.
- If people see you're out there doing good things in the community and good things with your employees on social media, consumers will be more likely to put their guard down for your company.
Next, we spoke to members from Kross, Lieberman and Stone. Here’s what they had to say:
Their agency started as a mom and pop but grew quickly. To help motivate their agents, they set goals other than call numbers and payments to mix things up.
One Example: "Collection Clue."
They created rooms on the clue board, using cubes the collectors were in. Then they created spaces on the ground like a game board. In order to participate, an agent had to have paid in full. Then that determined how many spaces an agent could go towards a room to guess on the who, what and where. Collectors chipped in some of the ideas about some crimes people did around the office that basically aggravated them. Those suggestions were used to pick the crimes. For example, "late to work" or "making coffee when the phone was ringing" or others that were practical for the business.
They try to have games on a smaller scale weekly and then one large contest for the entire month. Besides Clue, they have other tasks to meet goals like a scavenger hunt where an agent got 5 skips paid in full to achieve that task. It’s all about switching it up so that collectors do not become complacent.
- They focus their contents on the issues they are having - for example, if calls are down, they reward calls. If skiptracing is down, they reward skiptracing.
- Treat your agents like people - eye contact and communication means so much. Even just asking "how was your weekend" can go further than you might think!
- A misconception that collectors hold is "I'm the bad guy" - strive to make them feel like they did not make a "wrong" career choice.
- When you intentionally invest in your collectors and take your time hiring, it can have a very positive effect on turnover.
And finally, after our founders owned their own collection agency, they picked up a few tricks of the trade as well to keep their own collectors motivated. Here’s their top five:
1. Get a New View
Using total collections as a goal is simple, but it does make most days feel slow. Exceeding the goal and growing the numbers is unsustainable. If total collections is the only number collectors see, they'll quickly get disheartened and feel as if they're in a hopeless grind. Give them instead a new perspective by adopting a Key Performance Indicator (KPI) system. This way to measure productivity is equally rewarding and smoothes out the slow points.
2. Let Collectors Share Ideas
It only takes a few minutes each day to talk about specific accounts, how they closed them, and new techniques that work. They are the ones making the calls all day, and they can develop incredibly valuable rebuttals and specific knowledge that is worth money. The collectors like it because they feel they have somewhere to turn, they are contributing more than just time, and they get praise from their peers for success, which is a powerful psychological tool that motivates people to do extraordinary things.
3. Generate Inbound Calls
You’re paying your collectors to collect, which is when they’re most valuable, not to do menial soul-crushing tasks that waste everyone’s time and make them feel like cogs grinding in a rusty machine. Use a dialer (hosted dialer) to keep the calls flowing in and your collectors on the phone, even if only to break up the monotony of the day. Run a campaign on accounts that haven’t been worked in a while, even if slowly in the background. These can end up getting payments you otherwise would have missed.
4. Taking Time Out
This one is not for everyone, but there is sufficient evidence that working fewer hours overall makes the hours when collectors do work more productive to the point that you are paying less and getting more. Many agencies are hiring strictly part time employees. They are seeing many of these collectors being as productive as full-time employees. In college, I worked four hours a day at an agency and was consistently on top for that entire year. I think this is because I didn’t mind going to work, and it was easy to work nonstop for those four hours (and I was the king of picking up dialer calls :D).
5. Put it on Display
Displaying office KPIs for all to see is tremendous motivation, because nothing is hidden or assumed, and it is more consistent (and less expensive) than giving away cash or prizes. You can brew some healthy competition by getting a KPI dashboard and having a meter for calls made, accounts worked, dialer calls answered, or any data you have access to. Collectors tend to be competitive by nature, so they will want to be on top, especially if you make it clear every day that you are paying attention to the numbers and praise the top performers (and maybe a little shame to the bottom).
Using this as your guide, we hope you find success in the collections industry. Don’t forget, a reliable dialer and TCPA manual dialing option can help you stay compliant and productive - click here to learn more. In the meantime, don’t let the naysayers get you down - remember your role in the economy is important, and you have the opportunity to remove stress from someone’s life every day!