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.

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RELATED FAQS
  1. How do debt collection agencies make money?

    Find out how a collection agency makes money, what rules it is bound by, and when it can take a pay check or garnish a bank ... Read Answer >>
  2. If a collection agency buys my debt from another agency, does the debt become 'new'?

    Find out what happens when your debt account is sold from one collection agency to another and the impact on your balance ... Read Answer >>
  3. How can a creditor improve its Average Collection Period?

    Read about some of the ways that a business can improve its accounts receivable management practices to shorten its average ... Read Answer >>
  4. Why is Average Collection Period important to a company?

    Discover why the average collection period can be a particularly important accounting ratio for a company that relies heavily ... Read Answer >>
  5. In which industries is Average Collection Period most important?

    Find out which industries are most concerned with average collection period, and how different types of companies interact ... Read Answer >>
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