A collection agency is understood as another party, a third party, that acts as a representative of any business requesting such representation in order to collect an unpaid debt. Let's face it, businesses are in whatever chosen market to make money, not to lose it, and in some instances it becomes necessary to hire a third party to actively pursue unpaid debts. A collection agency will sometimes collect debts for businesses or lenders and in other situations, they purchase unpaid debts so that the debt can be collected and the money then goes to the collection agency.

If a collection agency doesn't buy the entire debt from a business or a lender, they may actively pursuit debts for a commission of the collected funds. The commission will obviously vary from one collection agency to another - an agreement between the business and the agency will be established before any debt collection action is taken. Typically, a debt agency will follow up with consumers that have not paid certain bills with an onslaught of telephone calls and multiple letters.

A debt agency is required to abide by certain laws. For example, they must always maintain a person's privacy, whether they have contacted the individual by mail or by phone. Letters must remain discreetly addressed and messages that explain the nature of a debt cannot be left with anyone but the person that owes a particular debt. A debt collector can continue to contact a debtor for as long as they like, as long as they abide by the laws enacted. If a debtor fails to pay their obligation or they do not respond to the initial actions of the debt collector, the debt collector may attempt to follow through with legal steps like a law suit and reporting of the debt to all of the major credit bureaus.

All debt collecting agencies must abide by the Fair Debt Collection Act, which specifically defines the measures that any debt collecting agency can take in terms of trying to retrieve monies. Although there are certain solutions that debt collection agencies can engage in, such agencies are limited in what they can and cannot do. For instance, an agency cannot jeopardize one's employment, nor can they simply take someone's property because they owe money for a bill. Finally, there is no longer any such thing as debtor's prison, so going to jail for a delinquent bill is not an option.

Lenders use debt collecting agencies in an effort to minimize their liabilities. Millions of dollars each year are lost due to unpaid debts. Thus, lenders and businesses make every effort to collect on outstanding debts with the help of professional debt collecting agencies. In doing so, the hope is to keep their businesses out of the red and into the black. Many outstanding bills pertain to credit card charges and medical billing and the losses are great and grow greater for such businesses each year.