“Ask CashFlo” is a credit and collections advice column for small businesses. Questions may be submitted via email to flo@askcashflo.com. Follow Ask CashFlo on Twitter @AskCashFlo. CashFlo reminds readers that she is not an attorney and nothing in this column should be construed as legal advice. As CashFlo always says, “When in doubt, consult your attorney”.

Dear CashFlo,

I have a small business in New York.  I am looking to hire a collection agency, and I don’t know if I need to check to see if they are licensed or not. Can you tell me, do all collection agencies need to be licensed?

Wondering in White Plains

Dear Wondering,

Hiring a collection agency can be of great benefit to your business, and you are right to be cautious and take steps to make sure you find the right agency to partner to get the best possible results. 

To answer your question, I must first make two distinctions. The first is the difference in the term, “license”, whether it be a license or registration to do business in your state or a specific debt collector license. Certainly, any company you would choose to do business with should be a valid company in good standing and registered, usually with the Secretary of State to conduct business in your state. A separate debt collection license is a different issue entirely.

The second distinction refers to the type of collection. You did not state what kind of business you have, and it makes a difference here. A license is often required for the collection of consumer debt (business-to-person), but not for commercial (business-to-business) collection. 

Consumer debt collection licenses vary by state. Some states require licenses, others do not. Here is a good outline of state licensing requirements.

In your state, New York, a consumer debt collection license is not required statewide, except for the five boroughs of New York and the City of Buffalo. As the license follows where the consumer is, if you have customers in The Big Apple, your agency would need to license there. If your customers are businesses, no collection license would be required, no matter where they are.

Confusing right? Well, nothing is simple, and it gets even more complex. Since you are on the border of Connecticut, you may have some Connecticut customers, so your agency would need to be licensed in Connecticut to collect from those customers (again, only if they are consumers.)

Make sure they are a real company in good standing, and get customer references. Make sure they are doing the work domestically and not outsourcing it overseas. If your customers are consumers, you can verify licensing requirements with either your state Department of Banking or Department of Consumer Protection. 

And remember, any agency you hire for consumer collection must also follow fair debt collection practices as outlined in the Federal and State Fair Debt Collection Practices Acts, whether or not they are required to license.

CashFlo recommends that you do the same due diligence that you would with hiring any vendor. Stay in close contact with your agency and give them the tools they need to do a good job for you.

Yours Truly,

CashFlo

P.S.  Need help with hiring a collection agency? Look no further!