What is a Debt Collection Agency Business Plan?
A debt collection agency business plan is a document that describes a business’s goals, strategies, and operations that pursues payments on debts owed by individuals and businesses.
A debt collection agency can operate as an agent of creditors and charge a fee or percentage of the total amount collected. It can also purchase debt portfolios from creditors at a discount and pursue the outstanding balances for profit. Check our loan officer business plan for better understanding.
A debt collection agency business plan includes the following sections:
- Executive summary
- Company description
- Market analysis
- Marketing plan
- Operational plan
- Financial plan
Why Do We Need a Collection Agency Business Plan?
A business plan for a collection agency is essential for several reasons:
- Clarify the vision and direction of the business and set specific and measurable goals and objectives.
- Secure funding from investors, lenders, or partners by demonstrating the viability and profitability of the business idea
- Attract and retain qualified staff by outlining the roles and expectations of each team member.
- Manage and monitor the progress and performance of the business by providing a roadmap and benchmarks for evaluation.
- Anticipate and mitigate potential challenges and risks by conducting a SWOT analysis and contingency planning.
How to Write a Debt Collection Agency Business Plan?
Here are some steps to follow when writing a debt collection agency business plan:
Step 1 – Describe the purpose of your debt collection agency, including your mission, vision, and values.
Step 2 – Describe the products and services you will offer, such as the types of debts, the collection methods, and the fees or commissions.
Step 3 – Analyze your target market, competitors, and industry trends, and define your unique selling proposition (USP).
Step 4 – Describe your operational plan, including location, equipment, software, staff, training, policies, and procedures.
Step 5 – Present your management and organization structure, including the roles and responsibilities of your team members and external advisors.
Step 6 – Estimate your startup expenses and capital needed, and state how you will raise or obtain the funds.
Step 7 – Forecast your financial performance for the next three to five years, using statements such as profit and loss (P&L), balance sheet, cash flow forecast, and sources and uses table. Refer to our tax preparation business plan for more details.
Let’s understand this process with the help of a collection agency business plan template of “Payup Partners.”
Payup Partners is a new US debt collection agency aiming to serve small and medium companies. With outstanding consumer debt at $17 trillion ($1.38 trillion delinquent), we see a major market opportunity. Our competitive edge comes from advanced technology, experienced staff, flexible solutions, reasonable fees, satisfaction guarantees, and exceptional customer service. Marketing will leverage digital campaigns, events, referrals, reviews, and more to promote our services.
Operationally, we will obtain licensing, purchase equipment/software, hire qualified staff, train employees, partner with vendors, and implement strict policies and procedures. We need $100,000 in startup capital and project $300,000 in first-year revenue and $60,000 in first-year profits, with annual growth thereafter.
At Payup Partners, we aim to provide professional and ethical debt collection services to small and medium-sized businesses in the United States. We aim to help our clients recover their outstanding debts promptly and cost-effectively while maintaining positive customer relationships. We strive to uphold our industry’s highest standards of quality, integrity, and customer satisfaction.
Structure and Background
Payup Partners is a New York-based limited liability company founded in 2023 by Andrew Moore (CEO) and Jennifer Lopez (CFO). The company operates a home office in Brooklyn and provides professional debt collection services to small and medium businesses.
Key services offered:
- First-party collections
- Third-party collections
- Debt purchasing
Key industries served:
- Financial services
Payup has 2 full-time employees and hires part-time collectors as needed. Payup Partners follows FDCPA regulations and ACA International’s code of ethics. The company respects debtors’ rights, treats them professionally, and maintains high data security standards.
Market (industry) Analysis
The US debt collection industry is a large and growing market that offers significant opportunities for Payup Partners. According to IBISWorld, the market size of the debt collection agencies industry was $20.3 bn in 2022. The industry employs about 137,603 employees and consists of about 6,345 businesses.
Key drivers of growth:
- Increasing debt – American households carry a total of $17.1 trillion in debt as of the second quarter of 2023 (Source – The Ascent)
- Outsourcing trend, as creditors prefer using third-party agencies
- Technological innovations like software, automated dialers, AI, and data analytics
Interesting stats regarding the U.S. debt collection industry:
- Market size of the Debt Collection Agencies industry in the US – $20.3 bn in 2022 (Source – IBISWorld Market Size Report)
- Growth rate of the Debt Collection Agencies industry in the US – Increased by 4.4% in 2022
- Market size of the Debt Collection Agencies industry in the US has grown 1.3% per year on average between 2017 and 2022
- Debt Collection Agencies Businesses in the US – 6,345 in the US (Source – IBISWorld Number of Businesses Report)
- Number of businesses in the Debt Collection Agencies industry in the US has declined 2.4% per year on average over the five years between 2018 – 2023
- Debt Collection Agencies Employees in the US in 2023 – 137,603 employees (Source – IBISWorld Employment Statistics Report)
- Regulatory compliance with laws like FDCPA, TCPA, FCRA, and CFPB oversight
- Negative public reputation due to unethical practices
- 82,700 complaints about first-party and third-party debt collection in 2020 (Source – CFPB Annual Report 2021)
- Highly competitive landscape with major players capturing the market
Our competitor analysis section of a debt collection agency business plan shows that the industry has several major players:
- XYZ Collection Agency – A large, established agency since 1990. Offers first-party, third-party, and debt-purchasing services across financial and healthcare industries. Has a nationwide presence, 500+ staff, and strong brand recognition. Uses advanced technology to manage processes and comply with industry standards.
- PQR Collection Agency – A fast-growing, medium-sized agency founded in 2015. Specializes in third-party collections for small and medium retailers, educators, and healthcare providers. Has regional presence, 100+ staff, and high customer satisfaction. Uses innovative and customer-centric collection approaches.
- LMN Collection Agency – A small, new agency launched in 2022. Focuses on debt purchasing for financial services, utilities, and telecoms. Has a local presence, 20+ staff, and aggressive, low-cost collection methods. Has a low reputation and brand awareness currently.
Our competitive advantage is our unique value proposition:
- Advanced technology and software to enhance efficiency, as highlighted in our bookkeeping business plan
- Highly trained, experienced staff following best practices
- Flexible, customized solutions suiting client needs
- Reasonable, transparent fees based on performance
- Excellent customer service and communication
Payup Partners provides professional debt collection services to small and medium-sized businesses nationwide. Our services help clients recover outstanding debts efficiently while maintaining positive customer relationships.
Our key services include:
- First-party collections – We act as an extension of the client’s accounts receivable department, contacting debtors on their behalf to encourage timely payment. We also provide regular reports and account status updates.
- Third-party collections – As an independent agent, we pursue debtors for a fee or percentage of the collected amount. We use ethical techniques to locate, contact, and negotiate with debtors and handle any disputes that may arise while following all relevant laws and regulations.
- Debt purchasing – We buy delinquent accounts from clients at a discount, then collect the full amount from debtors for our profit, assuming all collection risks and costs. This provides clients with immediate cash flow relief from bad debts.
Payup’s marketing plan has two goals: to get new clients and to keep the old ones. It uses these strategies:
- Website – Our website is easy to use and highlights our services. We have a blog section with helpful tips on debt collection and more. Our website works well on search engines and mobile devices.
- Social media – We are active on Facebook, Twitter, LinkedIn, Instagram, etc. We use social media to spread our name, talk to our followers, and share our blog posts and success stories.
- Email marketing – We email our current and potential clients with news, offers, and reminders. We also ask them for feedback and referrals after each collection case.
- Online advertising – We advertise online to find the target audience and get leads. We use PPC ads on search engines, social media, and banner ads on relevant websites and blogs. We also use remarketing to get back in touch with interested visitors.
- Offline advertising – We also advertise offline to boost our name and image. We use print ads in magazines, newspapers, and radio and TV ads.
Our operational plan has two main aspects: workflow and resources.
1. Workflow – We follow a standard and efficient workflow for its collection process, which has these steps:
Step 1: Receive the debt – Verify the debt information from the creditor and check its validity and accuracy.
Step 2: Contact the debtor – Inform them of the debt amount, due date, and payment options. Send them a written notice of the debt as required by law.
Step 3: Negotiate the payment – Try to persuade the debtor to pay the debt in full or in part or to set up a payment plan. Offer them various incentives and settlements to encourage them to pay. Learn more in our payday loan business plan.
Step 4: Collect the payment – Accept the payment from the debtor and issue them a receipt and a confirmation letter. Update the creditor on the collection status and the payment amount.
Step 5: Close the case – End the case when the debt is paid or settled or either party requests to stop the collection. Report the outcome to the creditor and send them a final report and invoice.
Step 6: Report the payment – Report the payment to the credit bureaus and update the debtor’s credit history, if applicable.
2. Resources – We have enough resources to support its operations, such as:
- Human resources – We have 2 full-time and various part-time qualified and experienced employees who receive regular training and coaching.
- Physical resources – We have a modern and spacious office in Brooklyn with all the necessary equipment. We also have a secure and reliable server that hosts software systems and data.
- Financial resources – We have enough operating capital to fund our operations and growth. We also have a positive cash flow and a low debt-to-equity ratio.
Payup is led and overseen by a strong and experienced management team:
- Andrew Moore – Founder, owner, and manager of Payup with over 20 years of experience in the debt collection industry. He sets the vision, strategy, and direction of Payup and handles the key accounts and relationships.
- Jennifer Lopez – Assistant manager of Payup with 15 years of experience in the debt collection industry. She assists Andrew Moore in running the daily operations and supervises the staff and their compliance.
- Sam Morgan – IT specialist of Payup with 10 years of experience in IT and software development. He develops and maintains the software system and equipment of Payup and provides technical support and troubleshooting.
Projection and Financial Planning
Our assumptions for the next five years for projection and financial planning are as follows:
- Increase in market share from 0.1% to 0.2%
- Maintain an average contingency fee of 25% for collections and an average purchase price of 5% for debt buying.
- Keep operating expenses at 60% of the revenue
- Reinvest 10% of net income for upgrading technology and equipment, hiring more staff, and marketing.
Here’s an example business plan for a startup collection agency projection summarized in the following chart:
Trust OGSCapital for Your Collection Agency Business Plan
With over a decade of experience assisting collection agencies, our team at OGSCapital has the expertise to craft an effective collection agency business plan tailored to your agency’s specific needs and goals. Our consultants fully understand the complex regulatory landscape and best practices to highlight your competitive advantages. At OGSCapital, we leverage proven financial feasibility study and growth strategies to showcase your profit potential to investors.
Frequently Asked Questions
How do I start my own collection agency?
To start your collection agency, you need first to understand how much does it cost to start a debt collection business, arrange finance, get licensed, set up your systems, hire staff, and market your services. Check out our collection agency business plan sample shared above for a better understanding.
How much profit does a collection agency make?
The profit of a debt collection agency startup depends on the debt type and age, the commission rate, and the costs. Collection agencies usually charge 20% to 50% of the amount collected. The average recovery rate for a collection agency is around 20%.
How do you start a daily collection business?
To start a daily debt collection agency from home, you need to identify your market, establish a fee structure, have a secure method of collecting and transferring money, and maintain good records and follow-up.
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.