Buy what you know. I wrote an article for Commercial Law League of America - titled Attorneys Buying Debt? It's a Who, What, Where & Why concept. Give me a call at 714-936-7671 cell# and we can talk in more detail.
If you're not that familiar with debt purchasing you're liable to get hurt financially. Debt purchasing used to have large margins which gave the buyer allowance for trial and error. What's more is the laws are starting to come down much harder for debt purchasers and the rights the original creditor had may not necessarily trickle down to the debt buyer in some states. I'd tread very carefully.
So to answer you questions directly...
1. Type of paper - Depends on what you're trying to do, offer discount settelments or looking to make money off the full balance. The later stage paper with settlement offers doesn't take as strong of a collection skill because the collectors aren't really having to push as hard. Paper that's not complicated (like credit card compared to healthcare) would be easier.
2. Recovery rate should be figured before you purchase the paper. You need to get at least 3 times what you paid for the paper (1x to pay for the paper 1x for the overhead/work 1x for profit). That's a very simplistic theorem but you've got to start somewhere. Back into your recovery rate from them and, if the paper doesn't historically support the recovery to make the revenue work walk away (or run).
I would carefully evaluate any "buying of debt". Mr. Mapes is correct and seems to clearly indicate that you can have a horrible financial outcome if you don't know what you are doing...and even if you do. It is kind of like the stock market....don't invest anything you can't totally afford to lose! That said, you can still make some good $$ with purchased debt, but investigate the new regulations that are out there specifically written for this kind of "investment". On top of that, there are some licensing requirements that are pretty expensive the 1st year (and even ongoing) and they are pretty labor intensive to maintain. Some states won't let you collect without a physical presence; some require a licensed manager and you must test on-site at the regulator's location. There really is a LOT to it.... so use careful and thorough evaluation techniques to decide if this is really right for you. I would look into some of the Debt Buyers groups and see if there are some upcoming events you might attend to get a flavor for things.
We do telephonic late stage collections for leading debt collection agencies in US out of our location in Mumbai,India. We work on contingency basis with them and have a team of experienced collectors. You can reach me at 1-866-883-7702 Extn:2059, email: firstname.lastname@example.org.
I look forward to hearing back from you.
Director Business Development at Epicenter
I just happened to see your post William. I am a professional collection agency consultant and turn around specialist. My best professional advise is to not buy debt as a new agency. You tie up your capital and the risk is unacceptable for too numerous reasons to list in this note. To establish revenue projections and budgets, you need contingency clients...now.
I presume that you have some clients or you would not have hired collectors. Put your efforts consistantly into sales. Profitable sales. Sales drives revenue. If you do not have a sales talent inside your new agency...that is a whole other note.
Who's the best client for your agency? The BEST client is YOU! If you own the debt you can control EVERYTHING related to files... SIF, Payment Arrangements, Suing the debtor, closing the file... WORK STANDARDS - YOU REMIT TO YOU WHENEVER YOU WANT. I've been in the industry for over 20yrs and you need BALANCE - Buy what you know and only take placements where yourself and the client agree to the game plan on how to work the files.... and at what RATE! My agency is a 60/40 split - approx 40% of our inventory is company owned. If you want to talk about this in detail, please call me at 714-640-3945.
I don't know if you have looked into software yet but I too am a small start up and we use Collect on Arctic. There is no set up fee and we pay $24.99 per user. It is pretty robust and easy to use. It is an inexpensive way to get your business up and running. I wish you much luck and a great holiday season!