I'm trying to explain to a non English speaker the term "only children" the plural of "only child", would I be correct in saying it's a collective noun?
yes, that's right. It sounds odd because "only" is usually an adverb rather than an adjective. But if you made it "tall children" or "Australian children" you can see how it would sound okay.
I don't know why you are linking that to me, woofgang, it is just confirming what I am saying. A compound noun can be adjective + noun, as in 'black pudding' or 'only child'.