A collection agency is a duly recognized and sanctioned business entity that engages in the collection of debts owed by individuals or other business entities. A collection agency can be part of a bigger company. In this case, the collection agency's main task is to collect debts owed to its mother company by its company's customers. There are also collection agencies that work independently and buy accounts from other companies who wish to outsource their debt collection activities.

In the first type of collection agencies, the company is still deemed as the one doing the actual collection. There are only two parties involved, the creditor or the company to which money is owed, and the debtor who is the individual or business that owes the money to the creditor. The collection agency in this setup is merely a representative of the creditor, and is in fact part of its network. It is simply a department of the creditor company specially tasked to collect debts owed.

The second type of collection agencies is that which collects debts as a service to other companies. These collection agencies work on a commission basis. They only earn when a successful collection is made. This commission can range from around 15% to 50% or the collected money, depending on the agreement between the creditor and the collection agency. The percentage usually depends on the type of debt for which restitution is being collected as well as on the difficulty of the task.

Collection agencies contact the debtor or the debtor's attorney to collect what is owed. They do this through phone calls, as many as three times a day, to the debtor's home or work phone. They also send out several letters, faxes and telegrams as appropriate or as needed. When their demands are largely ignored by the debtor involved, collection agencies resort to legal means.

Collection agencies have collection lawyers who file a case at the court to force the debtor to meet his or her obligations. It is hoped that the receipt of legal documentations would induce the debtor to make a payment on the debt due or at least make efforts to communicate with the creditor for a repayment plan. If no response is still forthcoming, it is hoped that the court could use its might to enforce repayment through wage garnishment perhaps or other means of restitution overseen by the court.

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About the Author

Tristan Andrews writes useful articles about collection agencies. Discover and explore the world of debt collections. Find out how using a collection agency can expand your financial horizons at http://www.advinfoc.com