Nine steps to establish a successful debt collection agency in China

Author- | Posted- | Updated: August 27, 2020 |

A debt collection agency is a company that collects unpaid debts for another party. Most companies hire debt collection agencies because it is cost effective for them to do so instead of spending their own resources pursuing these debts. If you want to be the owner of a debt collection agency, it means that you will collect debts on your clients’ behalf. This involves contacting debtors, performing skip trace investigations and the actual debt collection itself.

Debt collection can be one of the most uncomfortable jobs one has to do. It’s because most people have a problem paying their debts so most of the time you will be dealing with unwilling parties. However, in a fast growing market rooted in unpredictability such as China, it goes without saying that debt collection agencies are more than necessary, and establishing one requires patience and resilience. Before deciding on whether to start a debt collection agency or not, and knowing how to set up a company in China, there are a few hard questions one has to ask themselves first.

1. The Target Market

What is a debt collection agency’s target market? A collection agency’s target market is any individual or business that sells either goods or services on credit. You first have to know your target market before knowing whether you should go establish a debt collection agency.

Ideally, the Ministry of Public Security and the State Administration for Industry and Commerce in China only permits domestic law firms to collect debt through debt collection agencies in the country. You will only get work through law firms contracted by the businesses.

2. Is the Idea Viable or Not?

Can you make money from a successful debt collection agency or not? If yes, then how? A debt collection agency makes money by charging a percentage of the debt collected from debtors. It is a commission based business. The older the debt, the bigger the commission. Likewise, the more challenging a debt is to collect, the higher the amount you can charge.

3. What Skills Do I Need?

As aforementioned, resilience is a must have quality for being a good debt collector. Your communication skills should be top notch. You have to know how to approach and talk to people. You also need to be good at character judgment. That is how you will be able to devise a plan on how to approach the debtors. Building networks that will be sustained for longer periods of time are essential to your revenue making scheme. Remember, the amount of your commission fundamentally depends on the longevity of the debt.

As the business grows, you might need to hire extra people to help you with collecting debts. Make sure you screen individuals for the above skills.

4. Does The Business Have Potential To Grow?

The business has potential to grow especially when debtors end up paying their debts. During hard economic times when people end up taking a lot of debts, your agency has the potential to flourish. However, do remember that hard economic times come with low consumer confidence and spending. During times of higher certainty, people are much more likely to save. Therefore, you should not depend on hard economic times only. Your business should be on top of its game regardless of the economic scenario.

5. Costs Involved In Starting and Running the Business

Every business has its costs obviously, and a debt collection agency is no exception. Office rent, office equipment, hiring a web development company for your website; all of these consume money. Sometimes, you will be required to travel to meet debtors face to face, so there will be transportation costs. Other costs you will have to account for are license, legal, insurance and association membership fees.

6.  What are the accepted procedures

Some debt collectors are known to harass and threaten debtors in order to instill fear in them and to force them to pay. Others will call the debtors at odd hours or even visit them at their places of work. While you may be allowed to use creative ways and tactics to collect debt, some ways such as those mentioned can easily land you into trouble with the law.

Even as you start an agency, it is important to understand the rules and regulations for collecting debt in China. If you are at crossroads of what is legal and what is not, you might need to seek clarity with a legal expert knowledgeable in Chinese law.

After having answered all the questions above, and having decided to go for it, you now have to figure out the steps towards starting a successful debt collection agency. It is important to know these steps so as to minimize your costs that come with wasting time and money; the two most important resources to any given business.

What can be a game changer for your collection agency, is partnering with companies that provide guidance and advice throughout the first stages of your company’s establishment. Alternatively, Forbes, a global media and business company advises entrepreneurs that if they want to come up with a start-up business, then they should follow these steps.

On the other hand, here are the steps you need to follow in order to start a successful debt collection agency specifically:

1. Plan Ahead

Every successful business must have a plan. Always plan ahead so that you are always prepared for everything. Plan your finances, set your goals and prepare for challenges.

In principle, especially be cautious of unpredictable costs that your business may incur, and you will have to inevitably cover, if you want to avoid bankruptcy. Always think ahead particularly in terms of budgeting.

2. Ensure Your Business Bank Account Is In Order

Every successful business must have a business bank account so that personal finances do not mix with business funds. Have a business account where you can easily carry out your transactions. Your clients will perceive you to be more professional if you do have one.

In addition, mixing your personal and business accounts poses a risk to your personal assets in case the business is sued. You also want to build your business credit to position your business for better interest rates and higher chances of financing in case you need it in the future.

3. Acquire Licenses and Permits

You do not want to use your finances and strategically earned revenue to pay fines. To avoid unnecessary fines, make sure you have working licences and permits. This should be taken seriously since sometimes businesses get shut down for operating illegally. Besides, legal issues become harder to solve when they take time. That is why it is important to get it right from the very beginning. When obtaining your working licenses and permits make sure you are planning and acting in line with laws and regulations specific and relevant to China.

4. Take Care of the Legal Aspect Of Your Business

Businesses get sued and sometimes have to sue. You, therefore, have to ensure that your company is able and prepared to handle whatever legal issues that may come along the way.

5. Set Up Business Accounting

Keep a clear record of your income and expenses in order to properly track your business performance. This information will come in handy when filing your annual tax returns. Therefore, it is important that you have a competent accounting team committed to keep you out of trouble. It will definitely be worth the semi-variable costs.

6. Tax Registration

Tax registration is very important. You will have to register for taxes in line with China’s fiscal regulations before you open your debt collection agency. Keep in mind that taxes are legitimate costs to your business, however, getting into legal trouble for tax evasion, will be ultimately fatal. Even if your agency survives it in terms of costs, its reputation won’t. 

7. Brand Definition

What will set your business apart from the rest of the competition is a strong brand identity. Good branding makes customer acquisition way easier. Your brand identity conditions the way the public perceives you, which consequently determines whether potential clients will pick your agency for their credit needs and demands.

8. Come Up With A Good Website

If customers want to know more about your company, the first platform they will log right in to is your website. If you want your name to get out there, then invest in a good website and command a prominent and sustainable web presence.

9. Get Insurance

Insurance is very important and even fundamental for any business. It ensures that the uncertainty of losses is minimized and the welfare of employees is well-taken care of and thoroughly optimized.

If you put the work and commit to implementing these 9 steps, you can easily start your debt collection agency. You can be fully certain that you will without a doubt reap the benefits of your proper and strategic planning.

If, however, you are in doubt in any aspect of setting up a business, it is always wise to contact an expert to offer guidance.

Guest Submission By John Zoldan. Opinions are of the author.

John Zoldan