Business idea: Starting a debt collections agency


If someone owes you money which you are finding it difficult to retrieve from them, you go to a debt collector. Debt collection is an old profession, and the earliest known recorded debt collector was Zaccheus – the guy in the Bible who collected money on behalf of the government in Jesus’ day. These days, debt collection is a service required by both individuals and businesses alike, especially as highlighted by the recent naming and shaming of Nigerian bank debtors. This is a business that can be started for as low as ₦100,000, for anyone willing to put the hard work in.

How do debt collection agencies work?

There are 2 main ways in which debt collection agencies work: First is by ‘buying’ debts from clients. For example, Paul owes John ₦250,000.  The agency proposes to ‘buy’ the debt from John at a lower rate of about ₦150,000. Since John is at his wits end, and has lost hope of getting his money back, he accepts the offer and collects the ₦150,000 from the agency and closes the chapter. The debt collection agency then sets up a monthly payment plan for Paul to pay them ₦20,000 a month for 13 months to cover the debt and their ₦10,000 admin charge, and makes ₦160,000 over a 13-month period. This method works well for established debt collectors who have funds to purchase debts, and want larger returns on their cash in the bank.

The second method involves charging a percentage of any portion of the debt retrieved, in a “no win, no fee” type arrangement. For example, the agency charges John 20% of the ₦250,000 owed, and the charges do not apply unless the money is retrieved. Because the agency visited Paul with a POS at 4am on the day salary was paid (of course!) , he was able to ‘cough up’ ₦20,000. John gets ₦16,000 and the business retains ₦4,000 fees. The next time, ₦50,000 is collected, and ₦40,000 goes to John – and so forth. Using either of the two strategies stated above, you can serve a wide range of industries including micro finance banks, hospitals, shops etc.

How to start a debt collection business

It would be very  useful to either work in a debt recovery capacity to acquaint yourself with the industry, or take a course on debt collection. As this is a new area in Nigeria, the latter might be a better option. To gain some experience and carve out a niche for yourself, you could approach a business after your course, present your certificate and express an interest to work as a debt collector on a commission-only basis. This means you only get paid when your client gets paid, and could be a very easy way of securing your first client with minimal risks.

You will need to ensure that you are a suitable fit for the business by considering the physical, mental, emotional and time demands associated with the job.

  • Once you have done this, you will need to prepare a business plan to work out whether or not the venture is actually financially viable. In this, you will need to factor in the possibility of not getting your first pay for a few weeks, – at least until payday but stick at it.
  • Create a plan for collecting debts. How do you approach the customer in the first instance? Some debt collectors start with a phone call to introduce themselves, and the fact that they are taking over Client A’s debt in order to “work together to find a way to resolve the debt issue, while preserving the relationship between both parties”. Based on the clients response, you can either work out a plan with the client to collect the debt in instalments or on a specific date. Most clients would find it much easier to pay in little chunks and this is by far the more popular option. If a clients is unresponsive, then a text message, or a series of text messages (over a period of time – i.e every morning for 2 weeks) might do the trick.
  • You will need a system for recording information securely – contacts made, money collected and money passed on to your clients. Programs like Microsoft Excel might be useful, but be sure to back everything up, so that information is not easily lost. A cloud based program such as Dropbox might be useful for this. Using a program like this means that you don’t just save important files on your computer, but also on a server in the cloud, from which you can retrieve them, even if something happens to your computer. This is very important.
  • Your start up costs might include a good computer, stationary, security and protective gear/equipment and access to a car in the event that you need to retrieve property. A website might not be as valuable as word of mouth business/referrals initially, so it might be a waste of time and funds spending money on this.
  • Informing debtors that you are a collector trying to recover a debt for another company is one of the central elements of a collection agency. Compose a series of collection letters to send debtors that you can send in bulk. This can help you more quickly recover debts and make a profit.
    • Make sure your letters comply with local laws. You must inform clients that they have at least 30 days to respond to your letter or dispute the debt.
    • Include information such as to whom the debt is owed, how a debtor can contact you, and any fees for your services.
  • You will need to found a legal entity to give your business some credibility, as this involves financial services. Many lawyer charge a small fee to incorporate a company or you could go directly to the CAC in Nigeria.

How much do I need to start a debt collection agency in Nigeria?

As with every business, the start up costs vary with how you plan on position yourself in the market. To get yourself off the ground with the very minimum, here are the bare essentials:

  • A simple PC/laptop for recording customer information and downloading a cloud-based file program such as Dropbox like this brand new one from Konga for N42,000. You might get better specifications in the second-hand market though.
  • Internet connectivity – ₦2,300 starter pack with Smile’s 2GB package
  • Branded stationery – Letterheads, Business cards – ₦12,000. You can get 200 good quality letterheads from Printivo for N6,500 and 100 business cards for ₦3,000, minus delivery costs.
  • Printer – ₦14,500 from Konga
  • Office space – ₦35,000 monthly with Capitalsquare (Lekki) or ThePondLagos (Ikeja). These shared offices usually provide access to their printers inclusive so you might not need to add a printer to your start up costs.

Total outlay – ₦70,800. Add about ₦30,000 to this for miscellaneous costs, such as a uniform which isn’t essential, but provides a more professional outlook.

It is very important to think about how you will attract your first few customers. Will you contact businesses on a no-win-no-fee basis, or will you market to the general public using traditional marketing techniques? The decision is all down to you, and depends on what market you are looking to enter, but it is definitely important to have some good quality business cards, letterheads as well as leaflets explaining your business as the integrity of your services will likely be judged from your marketing material. If you are contacting businesses, ensure that you do some research first on the organisation, and find the decision maker.

I do hope that you find this useful, and please feel free to ask any questions you might have or make any corrections you have in the comment section as I endeavour to respond to every comment.

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I'm an grammar-obsessed writer with a passion for finance, innovation, lifestyle design, tech, healthy eating and who knows what else. Nothing makes my day like a nice, chunky comment on one of my posts to sink my teeth into. So go on, make my day :-)


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