Even in recession there are certain industries that continue making really good money. Take for example collection agencies, whose job it is to collect on past due invoices and debt of all sorts of companies. .

Back in 2017, Avi Grunwald is one entrepreneur who decided to start a debt collection company called Fair Capital without any prior knowledge of the industry. Today, Avi’s company works with more than 600 companies and brings in more than $80k per month in revenue.

In today’s business case study, I'll break down what you’ll need to start a debt collection service of your own, how to find customers, and how to get paid. Let’s get into it.

To give you some perspective on how big the debt collection industry actually is.. An estimated 28% of the United States has some debt in collections right now. According to Consumer Reports, 43 million Americans are contacted by collection agencies for medical debt each year. And of course there is a massive industry built around collecting on these obligations.

In case you’re not familiar, here’s how debt collection companies work:

Imagine there’s an ABX telephone company out there with 1,000 accounts more than 6 months overdue on their bills. Of course, the company already tried to get paid on this debt in the normal ways by sending email reminders, mailing letters, and making courtesy calls.

At this point, the ABX telephone company might give up on trying to collect any money. This is where a debt collection agency could come in.

From the perspective of ABX telephone company, getting a little bit of money from these past due customers is better than getting no payment at all.. As a result, ABX telephone company decides to work with a collection agency to do the work of calling and mailing people to pay their bills.

According to Avi these are the two most common ways that a debt collection company gets paid:

The first is called a contingency-based model. This means you only get paid when you successfully collect on a debt and is the approach Fair Capital used to build their business.

The average debt collection fee is 20% - 40% of debt owed. This means you’ll get $20 - $40 for every $100 you’re able to collect.

To use another example, if you were able to get connected with a landscaping company where outstanding bills could range from $1,000 - $10,000, you could see how this business model would be quite lucrative if you’re able to scale the business and take on a lot of clients.

The second way debt collection agencies get paid through a flat-rate fee. This means you’ll negotiate how much you’ll get paid with another company to collect payments. This allows you to get paid regardless of the number of accounts you’re able to convert into payments.

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