DEFINITION of 'Collection Agency'
A company hired by lenders to recover funds that are past due or accounts that are in default. The lending company itself may also have a division or subsidiary that acts as its collection agency. A collection agency is often hired after a company has made multiple attempts to collect its receivables.
BREAKING DOWN 'Collection Agency'
A collection agency usually earns a percentage of the funds or assets it recovers for the lender. Some collection agencies will actually purchase the debts from the lender at a discount, in which case the collection agency receives the full amount of whatever owed funds it manages to collect. Unless a collection agency has won a lawsuit against a debtor, it can't legally seize assets from a debtor or physically harm or threaten a debtor to make payment.