The primary function of a collection agency is to pursue and try to collect on the outstanding debt of businesses and individuals. Many times, a collection agency will act as a third-party agent of the creditor and is paid based on a fee or based off the total amount owed or collected. Prior to a company contracting with a third-party agent to perform collection duties, the company will want assurances the collections agency is in compliance with laws and regulations, such as the Fair Debt Collection Practices Act (FDCPA).
In terms of internal controls, the contracting company will want to see the processes around receiving placements, processing collections, receipt of payments, reconciliation of receipts, and reporting of debts collected. The contracting company will want assurances, through review of the SSAE 16, that customer information is handled securely and debt payment is provided completely, timely, and accurately.