How To Start A Debt Collection Business In South Africa
Who is a Debt Collection?
Debt collection is the process of pursuing payments of debts owed by individuals or businesses. An organization that specializes in debt collection is known as a collection agency or debt collector.
How To Start A Debt Collection Business In South Africa
An application for registration as a debt collector must be lodged with the Council on the prescribed form and must be accompanied by the registration fee and annual subscription fee prescribed by Regulation. No application will be finalized if the proof of payment is not attached.
Gain Hands-on Experience
Before starting your own company, gain some hands-on experience with another debt collection agency. At a reputable debt collection agency, you can learn how the debt collection process works and get some hands-on experience working as a debt collector.
Join Professional Organizations
Aside from on-the-job training, becoming a member of professional organizations, like the International Association of Professional Debt Arbitrators (IAPDA) or the Association of Settlement Companies (TASC). The IAPDA offers online training courses that help you become certified in debt specialist certification. They also offer online support and the newest available online education tools. TASC, on the other hand, lobbies on behalf of debt collection companies and ensures that its members are practicing fair and ethical debt collection.
Permits and Licenses
Every state has specific qualifications to license a debt collection business, and some states don’t require a collections license at all. To determine the requirements for your state, visit Business.gov to use the Permit Me tool. This tool prompts you to enter your city/state or zip code and the desired field (Debt Collection Agency)to find the business licenses and permits necessary for your state. Local permits may include tax, building, health, occupational signage, alarm and zoning.
Business Entity Creation and Registration
A debt collection business registers with the state in which it resides. If you are the sole owner, the legal name is your full name. All legal or governmental forms require this name as your business name. If your debt collection business has a name other than yours as its title, you need to file a fictitious name registration with your government agency.
You need to decide which business entity to establish (sole proprietorship, partnership, corporation, or limited liability company). The business entity registration is through your state government.
You will also have to register for state and local taxes, obtain a tax identification number, workers’ compensation, unemployment and disability insurance.
Start Up Costs
A debt collection business does not require massive start up costs, nor should it require high overhead costs. However, it does require some cash with which to start. Your commission from clients ranges from 20 to 30 percent of what you collect, but commissions do not arrive until the payment comes in from the debtors.
With this in mind, be prepared to pay gas, mileage and wages with another source of money until you start receiving commissions. Financing is one option, but business loans from your bank may be difficult to obtain even if you have good credit and a solid business plan.
Office Supplies and Equipment
You will need an office stocked with essentials like a computer, phone line(s), fax machine, printer and Internet access. You should also obtain a filing cabinet and/or software to manage your files. Collections software and downloads can outfit your computer with reports, forms, skip tracing, employment tracking, and security profiles, among other things.
Marketing and Promotional Materials
Design, or hire someone to design, brochures, signs, business cards and letterhead for your debt collection business. Set up a website and create a social media presence.
Write a letter to local businesses that may need your services and introduce yourself. Use company letterhead to print the letter and make sure the letter is clear, concise and grammatically correct. Call local businesses to make appointments with owners and offer your services.
Find Ongoing Legal Support
Obtain a collection attorney to support your agency in its endeavors. A collection attorney assists you in limiting your own liability and increases your success in debt collection. If legal steps need to be taken, your lawyer helps you secure a judgment against the debtor and protects and enforces the rights of your creditors.
Frequently Asked Questions (FAQs)
What qualifications do you need to be a debt collector?
You do not always need particular qualifications to become a debt collector or credit controller, but employers will expect you to have a good standard of general education. A qualification in book-keeping or accounts may be advantageous.
Do you need a Licence to be a debt collector?
Part-time work is common in this type of job. Most debt collectors are office-based. Field agents, who visit debtors’ at home or work, are often self-employed and may use their own home as a base. They normally need to have a driving licence and their own car.
Is debt collection profitable?
Therefore, the more debt they recover, the more profit they earn. Under these contracts, debt collection agencies may be paid a substantial percentage of the amount they collect – up to 50 percent, in some instances.
What debt collectors Cannot do?
Debt collectors cannot harass or abuse you. They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take. They also cannot make repeated calls over a short period to annoy or harass you.
How many times can a debt be sold?
Answer: An unpaid collection account can be sold and re-purchased over and over again by junk debt buyers. Often, a junk debt buyer will purchase a collection account, attempt collection for a few months, then re-sale the account to a new junk debt buyer. This can occur repeatedly until the debt is paid.
Can debt collectors beat you up?
The law lists specific ways in which debt collectors are not allowed to harass you. They are not permitted to: Threaten you with violence or harm. Use obscene or profane language.
How Do I Start A Debt Recovery Company?
Define your debt collection agency and how it will work.If you are owed money by an entity, form a legal entity to collect it. Obtain registration for your debt collection agency. Take out a business bank account and credit card. The Accounting Department should be set up for your Debt Collection Agency.
How Do I Start A Debt Collection Business In South Africa?
In order to become a debt collector, you must submit an application for registration along with the necessary annual subscription fee to the Council. As a result, it may be impossible to finalize your application if no proof of payment is attached.