Collection Agencies Shifting Strategies in Rough Economy: Survey
Collection agencies are being forced to alter the way they go after consumer payments in the current economy, even as placements are dramatically increasing, according to the results of an ARM industry confidence survey.
Accounts receivable management companies in the U.S. are more likely to alter their collection strategies in the coming months to offset weaker results from cash-strapped consumers, according to the results of Kaulkin Ginsberg’s Quarterly Accounts Receivable Management Industry Confidence Survey.
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More than 90 percent of collection agency respondents said that they were “Somewhat Likely” or “Very Likely” to modify collection strategies to more effectively align with economic conditions. Asked the same question a quarter ago, 83.9 percent of respondents answered the same way.
The most recent survey, conducted at the end of the third quarter, was taken by more than 750 ARM professionals, including bank and credit issuers; collection agencies and debt buyers; and vendors to the accounts receivable management industry. It follows the same survey that was conducted at the end of the second quarter (“Survey Shows Tough Times But Rosier Outlook for Collectors,” June 17). The most recent survey afford the opportunity to compare results quarter-over-quarter for the first time.Survey respondents were also given the opportunity to express their thoughts in a less structured way at the end of the questionnaire with an open-ended free response. Many discussed their company’s shift in collection strategies. “We have already modified our collection strategy to emphasize down payments and periodic payments in light of the decreasing liquidity of our debtor populations,” wrote one survey participant. “While placements have doubled this year and will again double next year, front-end collections are staying the same. Middle class America is out of money. The only thing leading the pack is our litigation debt,” wrote another.
The survey revealed that a positive development in the ongoing consumer credit-driven economic downturn is that placements from bank clients are way up for collection agencies.
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Comment from Rick Wittwer on November 24, 2008 at 5:18PM EST
Lenders are under significant pressure to reduce loss rates and control the budget (that pays for outsourcing). As your article outlines, outsourcing is up. While this normally would be a good thing for agencies, lower liquidations translates into lower fee/seat.
So, lenders want increased liquidations to reduce loss rates but can't afford to pay for it. Agencies normally would welcome the additional work, but lower liquidations means little if any profit per seat.
To resolve the situation, lenders can either relax agency work standards, increase the fee paid to the agencies so that their margins return to an acceptable level, or wait for the economy to rebound. Otherwise, more agencies will fail and overall agency performance will continue to suffer.