Collection agencies solve the problem of money owed that cannot be collected. Gathering these debts depletes small businesses time and finances, so to retrieve the owed money, businesses many times turn to third party collection agencies to bring in payments from debtors. Law forbids abusive or deceptive strategies when collecting a debt, so companies usually send notices and make phone calls to the negligent account, although they are barred from misleading you to accept collect calls or pay for telegrams. It is against the law for a collection agency to call at inconvenient times, such as before 8am or after 9pm, unless you allow them to do so. The Fair Debt Collection Practices Act (FDCPA), also blocks collectors from calling you at work, if they know that your employer does not allow such calls. They are not allowed to repeatedly use the telephone to bother you, use obscene language, falsely identify themselves as attorneys or government representatives, falsify credit information about you to anyone, including a credit bureau, imply that they operate or work for a credit bureau, send you anything that looks like an official document from a court or government agency when it is not, imply that you have committed a crime and that you will be arrested if you do not pay your debt, misrepresent the amount of your debt, collect any amount greater than your debt, unless your state law permits such a charge, indicate that papers being sent to you are legal forms when they are not, or indicate that papers being sent to you are not legal forms when they are. Lastly, collection agencies cannot claim action will be taken against you when such action legally may not be taken, or when they do not intend to take such action.

Under the FDCPA, you have the right to demand that the collection agency stop contacting you. However, they may still notify you that collection efforts have ended or that the collection agency will pursue legal action. The one exception is that residents of New York City can use a local consumer protection law (Rules of the City of New York sec. 5-77(b)(4)) to write a request to any bill collector and make them stop contacting them.

The collection agency must first contact your attorney. If you do not have an attorney, the agency must contact other people to find out your address, your phone number, and where you work. Agencies are forbidden from contacting these people more than once. The agency cannot tell anyone but you and your attorney that you owe money. Within five days after you are first contacted, the agency will send you a written notice telling you the amount of money you owe, the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money. A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating that you do not owe the money. However, a collector can renew collection activities if you are sent proof of a debt.

Debt collection is often times done on a contingency basis, with the collection agency keeping a percentage of the money collected. Small businesses using a collection agency, usually give a commission ranging roughly between 20% to 35%. The benefit of contingency billing is you do not pay for uncollected debts, but some collection agencies will not offer contingency services for small debts, meaning you will many times pay a fixed fee for a series of letters or calls. Also, collection agents may alter their fee hinging on the age of the debt due to the fact that it is more likely they will be able to recover more recent debts. A fee can go up if an account is passed from a collection agency to legal action, with fees of 40% to 50% becoming more commonplace once an agency decides to use a lawyer.