After about 2 years of selling insurance in Nashville TN quite successfully, I am moving back to Buffalo, NY in order to be closer to my family and friends since I am now the single father of two infants. The type of insurance I sold in TN is legal in every single state except NY, so I am in need of a career change.

After quite a bit of research, I have concluded that the best business opportunity for somebody with my financial means (30k in cash, mediocre credit score, no assets) and skill set (sales/nothing) is to get started in the collection industry by buying debt and trying to collect on it with a few employees under me. I have done quite a bit of research, but the industry is very secretive. This thread will either become a place where I can ask questions of people who have experience in the industry, a journal of my success/failure, or a well of some sort in the future as I progress. Anybody with any experience I would love to speak with. Any questions for me I will gladly answer.
Andy

Hi Andy,

Cool idea. I have a bit of experience. My wife was bankrupt before she met me so we have worked together to rebuild her credit score and pay off all her old debts. Therefore I needed to work with collection agencies and credit reporting bureaus (Equifax & TransUnion - I'm Canadian). Also through my work I have sent things to collections as well some of our own accounts with our clients have forced collections to come after us. Anyway collections is a pretty fun world IMO. Its fun because its all about problem solving, research, and cutting deals. There must be some good library books out there re collecting.
I don't really have a ton of advice but I will follow your thread and chip in any of my perspective if it is helpful.

Questions I would have before starting are:

What types of debt has a track record of being collected?

What means do you have of collecting?
ie. what is your collecting strategy? are you just going to tell people this will damage their credit rating?

I have just read a bit about skip tracing but have no clue about how to actually employ such skills.
All the best!

Thanks for the interest. There are actually no helpful books on the subject at all... there are webinars you can take, but there is very little in print about the business.

With my capital, I am going to have about 2.5k in initial start up costs not including buying debt... that includes collections software, a small room as an office, as it will just be two of us at first, some new very cheap computers, and phones/utilities etc. Also will be putting 3.5k aside in my LLC in order to draw 500 a week each for salaries until we (hopefully) can justify increasing our salaries in a few months.

I have debated what type of debt to buy, and have wavered back and forth a lot. I want to buy approx. 15k worth of debt to start, and with that kind of capital there is no way to buy debt that has never been collected on. Therefore I am going to start with one agency paper.
I contacted Aaron's, the rent-to-own store. They sell debt at about 2.1 cents on the dollar that has been worked by one collection agency for 90 days. For 15k that buys me about 500k in debt. If I can collect on 5% of it, and then sell the debt for 1cent on the dollar in 120 days, I will make a killing. The problem is most of the debt is in Texas, which is the single hardest state in the union to collect in, since wage garnishing is illegal, and so is repossessing property for private debts. On the positive side, the debt is very cheap, and we have all of their info they gave aarons at time of purchase.

The other avenue I think we are going to take is PayDayLoans. One agency paydayloans can be bought for about 6cents on the dollar, and are much easier to collect on. The people who owe on them are typically not aware of what legal action is available to them, and either pay the debt immediately, are eager to set up a payment plan, or ignore the debt strait away. There is very little time wasted trying to sweet talk people.

Our strategy for paydayloans is calling each person, and speaking with them about the money they owe. If they are agreeable or willing to talk at all, most of the time we can recover ~75 percent of the balance over the course of 3 months or so. If they say they won't/can't pay, we say that we will be in contact with our attorney, and will be attempting to get a judgement against them. We also send out a letter from an attorney's letterhead we have on retainer stating the same thing. We never actually go to judgement because its to expensive, and some of them know that, but we can. We also tell them that they will never be able to get another loan, getting an apartment will be tricky, and forget about a car or a house. Then we say that we will settle for 75%, and their credit will be in tact.

If we can collect on 13percent of these loans in a 90 day window, and resell the debt at half the price we paid for it, we will make a killing on these types of loans.

Skip tracing is a great tool, but you need to be an established agency to get it. They do very hard background checks on companies that use it since they provide sensitive information. We hope to be qualified to use it in about 6months.

How do you find places to buy debt from? Did you approach Aaron's directly or is there some other method you used?

you really have to search to buy debt directly from the person it was originally owned by. Debt that has never been collected on by an agency is very expensive relative to debt that has been worked by a company for obvious reasons. With Aaron's, I would have been buying debt from a huge debt buying company who very briefly works the debt in order to get the easiest accounts settled, then sells the rest as "one agency debt" meaning it has been worked by one agency already. 0 agency debt is referred to as prime debt. There is also 2 agency/3agency etc.
I don't have enough cash for Aaron's to sell prime debt to me, so the huge agency buys a ton of it prime, breaks it up, and sells it to smaller agencies like me for a lower price than prime would be.
You can sometimes get great great deals as a small agency approaching smaller companies that have debt they would be glad to sell, but they aren't large enough to have monster agencies buy prime debt. I am hoping to find some of those once I get some experience buying and collecting on debt. Small local banks are great places to try to buy debt from.
If I end up being very successful, I would contact Aaron's or some other place directly with a larger bankroll and try to buy debt directly from them. However, it ends up that the debt goes to the highest bidder, so I'd really have to know how much it was worth and have my pulse on the market, which I don't have yet, in addition to not having the capital.

I see a lot of "ifs" in your plan, but do you have any hard info on what the actual rates of collection are for non-prime debt? And do you think you can have as good (or superior) success rate rate than the industry in collecting debt? (And if so, why?)

With regard to the debt you're talking about: What control over the individual debt sizes do you have when purchasing? I ask because there would be some practical differences between buying 50 $10,000 debts, 500 $1,000 debts, 1,000 $500 debts, and $5,000 $100 debts. I know it won't break down that evenly, but you'd be more subject to variance if you caught some high-dollar accounts. Likewise there's probably more time and labor needed on your part to pursue low-dollar accounts.

Have you accounted for the labor required to update and correct the credit bureaus when there are disputes? Will you follow up and submit claims (correctly) when someone files a Ch 13? Thought about the other processing costs and I'm sure record-keeping/data entry to factor in. A couple of business phone accounts for one, and they're not priced like residential ones.

Are you going to go about some kind of training for not only yourself but the people that you employ, to ensure you don't violate the FCRA or any collections-related laws? I'm sure you already know a ton of things you can and can't do as that information is out there, but some of those thinly-veiled threats you'll have to be cautious with.

Of course there's taxes, and then payroll taxes and any insurance for your employee(s) and the processing of that. You'll need to keep books (not hard for a small operation, but it still takes a little time to do properly).

This are just a handful of concerns off the top of my head. I don't know enough about you or that business to speculate on your chances, but this seems like the type of industry it helps to have at least some direct experience in and preferably in a management capacity. You would be going into this as a person inexperienced at buying debt, collecting debt, processing debt, and selling debt. With limited capital on top of that and I imagine lots of competition, and you're going to finance, manage, and work the phones yourself? Just in terms of the labor needed it sounds like you might be a little optimistic.

Not something I could do myself but I am curious on where you got the 5% from? I live in a jurisdiction where consumer debt is very hard to collect on so that seems high to me for debt that has already been worked on by a collection agency. I have zero experience with the industry and you seem much better informed but I have known a decent number of deadbeats and not one has ever paid anything despite collection attempts.

You make a lot of good points. First things first, as far as control over individual debt sizes you buy, the control over that is over what portfolio you buy. When you don't buy prime debts, you buy portfolios that are presorted from the big guns in the business. My debts that I am buying are sorted into an AVERAGE of a little under 500 each. With 15k, I am buying about 250k of debt, which works out to about 500 accounts. There is a lot more time and labor per dollar, but the liquidation rate is higher, and the variance is lower, which I need given my limited capital.
The debt is scrubbed for people with bankruptcies, so theoretically I shouldn't have to even try to collect on that, and if I accidentally get an account or two that have filed, it isn't worth the trouble for 500 bucks, so no I won't collect on that or even try.
I have done lots of research on compliance laws, and there is a ton of stuff to be careful of. I am going to be working with just myself and a good friend of mine who has done collections for a long time, and he will be my only employee to start. He knows his stuff, and I have also signed up for a compliance class that the corporation I am purchasing my debt from offers.
As for processing/data costs, there is collection software that I have already signed a contract with for 100 per person per month. It handles everything except payment processing, which I have signed up with another company with for 2% of what is collected. I have decided to add a 4.99 convenience fee for online charges which won't offset the average $10 cost of collecting on 500 dollars of debt, but will help a little bit.
Keeping payroll and books is old hat to me, as I was self-employed as an insurance agent for a year, and before that I was the general manager of a stripclub and did payroll for about 15 employees every week.

It def. does help to have some experience in the industry. I'm flying blind, and somebody who has been a collector for years would probably be more successful at first, but they probably wouldn't have the bankroll I do to give it a shot. I am hoping having an experienced employee who is also one of my best friends will help more than it hurts. The labor needed isn't optimistic, I know what I have planned laborwise is reasonable. Everything else is optimistic, and I know it. I have big plans, and big ideas, but no experience. I know everything is going to have to fall ok for me, but the idea of working a job I don't like for 75k a year for the rest of my life like I had been doing isn't acceptable to me. Now is the time for me to take a shot, and this thread will be me documenting my success or lack of it. For now I will be a grunt on the floor doing all the day-to-day collection, hopefully in 6 months I will still be updating this thread and telling you what managing a collection agency is like.

do you live in Texas by any chance? Texas is by far the worst state in the country to try to collect debt in AINEC. A lot of people don't ever pay. However, if I hit 15% liquidation rate, I will be a millionaire. If one out of 10 people pay their debt, I will be making a good living. I have heard off the type of debt I am buying at 6cents on the dollar, 9% first month liquidation is average. Lots of it is collected in the second or 3rd month in payment plans, so if I can do 12% over 3 months I will be thrilled. Also, the resale value of the debt is there. The person trying to sell me the debt says 4.5 cents on the dollar is a decent retail value, so I am saying that 3cents is more realistic. So if my 15k gets 7k back after I collect 12% of it, my gross is 37k after 3 months. Subtract 15k for the original cost of debt, and that is 22k for 3 months. Subtract 1k each month for overhead costs, you're at 19k. Subtract 6k for my employee, and im at 13k for 3 months. Not a great living, but 12% liquidation for 3 months is conservative, and so is 3 cents on the dollar resale. And this is only with 2 people working. If I can have that moderate success, I will have an additional 5k for investing after 3months, and will be able to hire 2 more people and buy more debt at a cheaper rate.... hopefully


To talk about a 5% seeming high for the second collector; companies that collect prime debt normally just collect using a dialer and mail. They rarely work phones at all. They get the easiest collections without doing any real work, and then try to resale the debt in small packages for nearly the rate they paid for it. They can do it and be successful because they buy in such huge bulk. But people who buy debt already worked can do very well as well. The liquidation rate that I came to is based on people I know in the industry who have done this a long time... and friends of mine that have done it, not the people selling me the debt lol. It depends on how hard you work it etc etc. There are lots of things I don't know, but I have tried to educate myself as much as I can. All my estimates I think are perfectly reasonable, but they take the assumption that I will be competent and get over the learning curve quickly... I may be off in my estimations.

OP, what is your strategy for collecting on the consumer debt in Texas? How are you going to motivate the debtors to pay? What leverage do you have beyond impacting their credit via filing with the credit agencies, or receiving civil judgments against them?

If the average debt is just under $500 each, what are the associated labor and capital costs per debt, on average?

What are your thoughts on strategies that focus on higher numbers of resolutions with lower margins per resolution? Balancing being willing to settle for whatever discount on face value against the invested capital/labor expenses. Where does the minimum capital/labor investment per debt that you make place the minimum percentage of face value that you are willing to accept?


Good luck!

In Texas, you pretty much have to settle for ruining their credit, and hoping they care about that. I point out that they have already defaulted on the debt once, and defaulting again to me will ruin their credit for a long time. They won't be able to buy a home, they won't be able to buy a car, they won't be able to get an apartment. No credit cards or loans of any kind. You also can threaten lawsuits legally, and hope they are ignorant of how costly and ineffective they will be for me. A lot of times you don't really have to do any of this, as in my experience MOST people actually want to get out of debt, and have just fallen on hard times. A lot of collections are fairly easy if you can take payments over a few months.
As far as labor and capital costs per debt, that really depends. I have to figure out what the equilibrium will be for best... working debt for one month to get the highest liquidation rate and selling it quickly and starting over, or working debt for a few months with diminishing returns but a higher ROI. That is something I will need to figure out with experience.
Same with strategies with higher resolutions/lower margins. That is much better employed by debt cheaper than mine will be, like with Aaron's accounts you can get for 2c on the dollar, or 3agency debt that costs about .35c per dollar. At .35c per dollar, any amount collected is a huge win... when I'm paying 6c per dollar, I figure if I can get 75% TODAY I can settle, but other than that I really need to get some experience with large numbers of debt settling to figure it out. This is the part where being an experienced collector would help me know this right off the bat and I am at a disadvantage.

Thanks for the goodluck run good though!

100 posts! YAY!

What percentage of outright fraud are these debts would you say?

I kinda followed you on most of this, but the part about buying the debt from someone else who has already cherry picked through and worked the debt AFTER Aaron's has done their own work on it seems like you will be trying to piss on a forest fire in making these collections, but of course, I really have no idea.

Does your partner have specific experience with collecting from these Aaron accounts or something similar in nature?

It sounds like if they have not made arrangements to pay, they either cannot, or wont so not sure what a phone call with credit threats does that hasn't already.

Interesting idea to pursue and best of luck...I would be hesitant to put half your capital into work right off the bat as it sounds like you are doing. Are you required to buy in such large amounts?

I have actually decided not to buy debt from Aaron's specifically because my partner has no experience with it. We are doing paydayloan collection because that and credit card debt is what he's always done.
You are correct that most people won't pay, but even a 10% collection rate will make you money, a 12% will make you a success and 15% will make you a runaway champ.
You are not required to put so much capital in initially, and can put in as little as 6k, but you will get a much crappier cost on your debt. the dept I was looking at would cost about 7.25c per dollar if I bought it with 6, but 6c if i pay 15k... thats a huge help.

The outright fraud on the debt I will be collecting is presumably very low, because the amounts involved are way to low to risk a felony for. We are talking about a MAXIMUM balance due of 1k.

Ok, so then when you can get these deadbeats to start paying when they agree to settle for 75% as you say, how does that work?

So you start arranging payment plans and installments with them, and they mail you money orders over a period of time?

There is no way I would think, even at balances of <$1K they are going to have cash to send once they agree to pay, even at 75%. This greatly affects your cash flow to move on and purchase other debt I would think, plus, increases your labor hours as you inevitably have thousands of accounts to keep up with who might stop making payments on their debt and meanwhile money SLOWLY trickles in.

What is your solution for this problem?

the solution is to use debt tracking software I pay for which i mention in an earlier post. You code in what they have said to pay you, and when. The payments are set up automatically through ACH or CC postdated. No mailed in checks unless absolutely needed. Labor hours should not be effected much in this way, except for follow up calls. Cash does slowly trickle in, although the average payoff time is 3months from agreement to pay until balance paid off. Hence the idea of working debt for 120 days then reselling it. I plan on buying debt every 3 months to start.
There is no exact way to make sure people pay. They are debtors mostly because they couldn't handle money obligations well, and paying me is no dif. Hopefully the fact that a 12 percent collection rate is my goal will be doable because it is only collecting from slightly more than one out of 10 people.

2.1% seems low... But what makes you think that you can collect even a single dollar? What incentive does the debtor have to pay you anything? Unless you go around the neighborhood braking kneecaps, it seems like most people will just tell you to FO and hang up the phone.

If you can even get them on the phone.

I would have to imagine some of the lead information is dated, or even plain wrong, or bad information to begin with.

These types of people either don't have a cell phone because they can't afford it, or they don't pay that bill either if they do, or possibly switch a lot and use pre-paid phones etc.

These are also the type that are probably very transient in their residence, and move once every year if not more so doubt you are going to be able to locate most of them at the permanent address given.

SebastianHalf,

Not Texas -- Canada which is worse since consumer debt in my province has a sol of two years. Between deadbeat networking and the internet most deadbeats can figure out pretty quickly that if they just pay nothing for two years the collection agency can't do anything to them.

This has been my experience. Not like I have a huge sample size but being around degenerate activity leads to a decent amount of exposure to deadbeats and none of them ever pay. They will pay their bookie because there are consequences but paying a credit card company just isn't a priority. Once your credit is shot there isn't much they can do to you and in some cases paying debt after your credit has been ruined is actually worse than just ignoring it so they actually have an incentive to not pay.

The debtor has incentive to pay for a number of reasons. One reason is that very few people don't mind being in debt. In my limited experience in the industry, a lot of people have gotten into debt because they don't manage money well, but are doing what they can to get out of it. Lots of times if you work with them, they will try to work with you. Lots of them will tell you to FO, but a lot of them won't. You do have legal recourse, such as getting judgements etc, and destroying their credit rating. Destroying their credit is something I can do easily, getting judgements is to costly, but hopefully they don't know that and you can threaten it.

PFUNK: you are correct that info is often dated or wrong. This fact is not ignored by collectors. The people who fall into these types of debts are exactly the type of people whose numbers/addresses change a lot. The solution to this is a SKIP TRACING service. You pay either per month or per trace, and it tracks the person based on SSN that we have to their most recent address and employer and phone number. Depending on what service you use, many skip tracers can come up with names and numbers/addresses of neighbors or relatives as well. That is how you hear all the horror stories of collectors letting neighbors know about debts people owe. But like you say, if their conscious doesn't make them want to pay, it is another tool in the arsenal for us to collect a debt they legally owe us.

I don't know anything about Canadian debt, but a two year SOL is pretty rough. Texas is the worst in the US and even they have a 4 year SOL.
And you are right. Most people ignore debt and don't see incentive to pay it. Again, it's a numbers game. If 25% of people who owed, paid, then we could never get debt for between 2-10 cents on the dollar. It is a numbers game, plain and simple.
The people that do pay realize sometimes that they will need to borrow or qualify for something at some point again, and won't be able to if they ignore me. Again, like I've stated, collecting 15% of what is owed to me is as high as my hopes are able to go. If I collect 15%, I will have succeeded beyond what I think is reasonable. At 12%, I will be extremely happy at the debt I am planning to by at 6c on the dollar. If I was to buy the Aaron's debt, 6% liquidation rate would thrill me.

Isn't your credit rating already pretty bad by the time you have stuff goes to collections?

Also don't people who have items in collections tend to have multiple items in default? As such even if you don't ruin their credit someone else will.

Yes, your credit rating is normally shot. However, you are only supposed to have one black mark on your credit rating per debt. If it goes to collections and I am paid, if you do a lot of work you can get the original spots rubbed off your credit report.
People with PayDayLoans normally don't have a lot of things in default though. The reason they get a PDL is because they can't get credit in normal places. PDL is the last place they can get credit, and they may need to again.
To make an analogy that probably doesn't make any sense, Hunter S. Thompson said that when he rode with the Hell's Angels, he said that they would disrespect anything EXCEPT the bailbondsman. The would always make sure they paid the bondsman, while ignoring most other places they owed money to. He said that this is because they knew they would need the bondsman again. Debtors who use PDLs are like this in a lot of ways. They know a lot of times that PDLs are their last chance, and if they mess it up, next time they need 500 for the gas bill, the gas will just get shut off with no means of getting it back on.

I don't see this working out well. A lot of debt sellers won't even sell to people in Buffalo because it is known as scumbag central in the collection universe.

Also, it is going to be very hard to liquidate even 5% of your paper in 120 days on the junk debt you will be able to buy.

The average consumer receiving collection calls is receiving them on 4-7 different bills in default.

Just in the bolded I see violations of FDCPA and CROA.