Hopes of qualifying for the World Cup officially came to an end with a 2-0 defeat in Serbia on Tuesday night, as the Scots became the first European nation to have their fate sealed. The reverse means Gordon Strachan's men remain bottom of Group A with two points from six games and on the end of their fourth successive qualifying defeat.
Collins, who won 58 caps, believes Scotland are simply not good enough at this moment in time and that working with stars of the future is the only way forward. He told Sky Sports News: "I'm bitterly disappointed, like all the players, coaches and supporters."
He continued: "The last thing we want is to be out of the tournament so early but we got off to such a bad start in the first two home games, where we couldn't get the win, and it puts the pressure on the manager, players and coaches straightaway. The bottom line is we haven't been good enough."
He added: "We are not good enough at this moment in time but we have to look further down the ladder at the younger players, that's where the real work has got to be done.
"It has started with the SFA and the performance schools with the 12-year-olds. That's where the work has got to start on a daily basis, working on the skill and the technical aspect of the game, that's where we are falling short. It's going to take time and patience. Nobody has got a magic wand. It's a lot of hard work at the grass-roots level that's got to be done."
Former Celtic and Monaco midfielder Collins featured in the World Cup finals in 1998 - the last time Scotland qualified for a major tournament.
Asked if qualification for the Euros in 2016 is a must, he said: "It's something everybody in the country wants but, as years go by, it becomes more difficult.
"Why? Because we were in pot 4 for this group stage and we are getting tougher groups now. Do we have great players? We don't have a Gareth Bale. We have good players but so many have been injured as well. What we need is everybody fit and for Gordon to have everybody to pick from.
"So much is about confidence and getting off to a good start. In recent campaigns, we have got off to poor starts and, when you get off to poor starts, the pressure is on and it's difficult. Confidence is such a big thing."