What is the primary purpose of collection agencies?

The primary purpose of collection agencies is to retrieve defaulted debts for a fee. Collection agencies are specialized companies that focus on pursuing payments on debts that are past due and have not been paid by the consumer or business. When creditors are unable to collect in-house, they often turn to collection agencies to recover their funds. These agencies have various methods and strategies to encourage repayment, including negotiations with debtors and reporting to credit bureaus.

The role of collection agencies is crucial in maintaining the credit system, as they help ensure that creditors can recover funds owed to them. Their fee structure typically involves taking a percentage of the collected amount, which incentivizes the agency to recover as much debt as possible. This operation is distinctly separate from other financial services, such as issuing credit cards, providing financial education, or managing bank accounts, which are not the primary functions of collection agencies.