What should I check before buying a collection agency?

A collection agency looks like a service business with an office and a phone system, but the value sits in a few specific things. There are the creditors who send it work, the accounts it is working now, the people who make the calls, and the records that prove what happened to every dollar collected. A buyer who treats it like a marketing agency or a call centre will ask the wrong questions.

Separate the assets from the activity

Ask for a list of the agency’s clients and the written terms for each one. Ask how many accounts are open now, who placed them and how old they are. Find out whether the collectors are employees or contractors, and which of them hold the relationships. Ask who owns the licence to it and whether it can be transferred to you.

Follow the money, then the paper

The central records are placements, recoveries and remittances. Ask to see how a payment from a debtor travels to the client, how quickly, and how the agency keeps its own money apart from client money. Ask for the reconciliations and for any client complaints about reporting. Ask for complaints from debtors and any contact from a regulator, and read the agency’s file on each one.

Leave the licensing questions to the right people

Ask your lawyer whether the agency is regulated and what that means for who may operate it and how client money is handled. Do not rely on the seller’s summary. Ask your lawyer whether the agency’s registration carries over to you, what trust-account obligations come with the business, and whether the sale needs anyone’s approval first. The regulator’s own guide is a good place to read before that conversation.

• Client contracts and any notice or consent needed to transfer them.
• Open accounts by client and by age, with recovery history.
• Collector agreements and the names of the people clients deal with.
• Bank reconciliations for client money and the remittance record.
• Complaint files and regulator correspondence.