How To start debt collection Business in Nigeria

Debt collectors work with consumer or business clients to help them trace missing debtors, contact debtors regarding their debt, with the aim of finding a reasonable solution for all involved (such as negotiating a settlement or creating a payment plan), and administer legal collection procedures if necessary.

For businesses wishing to collect debts in Nigeria, the first step is to gather documentary evidence, including written agreements, invoices, letters and emails. Then, issue a demand letter to the debtor stating the actions that will be taken if the debt is not paid within a certain time period (usually seven days).

Hiring a debt collector: Many creditors hire debt collection firms after they are unable to recover debts on their own.

Using debt collectors: This method has become more effective over time, and many commercial entities have adopted it.

The debt collector collects the debt on behalf of the creditor

In this situation, the original creditor still owns the debt; however, they use a debt collection agency as a way of contacting the debtor. The debt collection business will be paid a percentage of any money they collect.

Although a debt collection business can’t legally do anything different than a creditor, they typically have the time, resources and expertise to chase a debt more efficiently.

It is important to note that a debt collector is different to a bailiff (now called an enforcement agent). While an enforcement agent has the legal power to collect a debt (for example, by removing items from your home), a debt collector has no legal power to collect a debt. A debt collector cannot forcibly enter a debtor’s residence, take money from their bank account or remove any items from their home. For a difficult-to-collect debt, a debt collector can negotiate settlements for a lower amount or can agree upon a repayment plan with the debtor.

Debt collecting is a regulated activity, meaning there are laws and regulations you must follow. Many debt collection agencies work out of an office. They may meet with their clients in person or via telephone. They can also speak to debtors they are working with over the telephone or via email, or they can visit their homes. When setting up your debt collection business, you can choose whether to act as the sole debt collector or hire employees who will also work as debt collectors for your business.

There are many different responsibilities associated with setting up and running a debt collection business, including:  Identifying any deviations from predetermined payment plans.

 Utilising various tracing techniques and strategies to collect and collate the necessary information for each case.

 Writing letters to inform debtors of their outstanding debts and how to repay their debt.

 Making phone calls to debtors to discuss their debt.

 Explaining repayment options, including payment plans and ensuring the repayment options are realistic for the debtor.

 Negotiating repayment terms and amounts and creating newly adjusted payment plans.

 Handling any questions or complaints.

 Building trust and positive relationships with both creditors and debtors.

 Identifying vulnerable customers and escalating these cases to the relevant support teams.

 Identifying non-compliant customers and escalating these cases to the insolvency teams.

 Servicing court orders to recover outstanding cases, if necessary.

 Maintaining detailed records of each case.

 Updating account status and the database regularly.

 Accepting payments.

 Monitoring debt payment agreements and tracking repayments.

 Carrying out appropriate checks regarding non-payment before pursuing recovery action or legal intervention.

Set Up Your Office and Infrastructure

To launch your debt collection agency, you’ll need a professional office space, office equipment, and technology infrastructure. This includes computers, phones, office furniture, and debt collection software.

Hire and Train Staff

As your debt collection agency grows, you’ll need to hire and train staff to handle the increasing workload. This may include hiring additional debt collectors, support staff, and management personnel.

Types of Customers

The customers of a debt collection business are typically creditors who have been unable to reclaim debt that is owed to them within the agreed-upon timeframe. Your business will usually act as an intermediary for lenders and other creditors who are owed a debt that is at least 60 days overdue.

Credit card companies.,  Loan companies (e.g. personal loans, store loans or car loans).  Utility companies., Mobile phone providers., TV and Wi-Fi providers (e.g. Sky and Virgin), Student loans,  Private parking companies.,  Construction companies (e.g. to seek payment for their work).,  Professional service providers (e.g. architects, engineers, lawyers or financial advisors that were not paid for their services).

The commission percentage can vary significantly but typically averages at between 10% and 50%.

Alternatively, you could opt to purchase debt from the original lender or creditor. Your business will then become the legal owner of the debt, meaning your profit will be the entire amount you collect from the debtor. Although the price of buying debt can vary significantly, on average, debt collectors pay 10%  for every N1m of debt they purchase. For example, if the debt you purchase is N1M, the average purchase price will be N100k.

Typically, the creditors and lenders who are likely to use your services are:

 Businesses and lenders that have insufficient internal resources, a lack of expertise or no available time to chase debt that is owed to them.

 Businesses and lenders that have previously failed to collect debts themselves and who are finding their profits affected by outstanding debt.

 Businesses and lenders that have been unable to trace a debtor.

 Businesses and lenders that experience a customer who is disputing a debt or disputing an invoice.

If you are thinking of starting up a debt collection business, you will need to ensure you have strong verbal and written communication skills, the ability to stay calm under pressure and good negotiation skills. You should also be able to demonstrate empathy and understanding towards individuals and businesses in debt and be able to explain financial matters, repayment options and credit services clearly to the debtor. You must also ensure you have a solid understanding of relevant legislation and court procedures.

Get our Practical Training Guide on How to set up a Debt Collection Agency in Nigeria. If you want to become a professional Debt Collector you need to learn how to become one. So, if you don’t know where to start, don’t worry. We will show you all you need to know to become the best Debt Collector.. In this guide, we provide a step-by-step guide on how to become a Debt Collector, discuss some tips for getting into this field and describe what to expect from this career.

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