Economic Transition Toughest Time for Collectors: Analyst

Collectors are now facing perhaps their toughest time to collect debt, as the economy slows and consumers draw in their spending, Michael Klozotsky, a research analyst with ARM industry consultant Kaulkin Ginsberg Co. tells insideARM.com today.

Klozotsky is co-author of The Kaulkin Report, 7th Edition: The Future of Receivables Management that will be released early next month.

Despite the slow down, the amount of revolving consumer credit will grow at an estimated compound annual growth rate of 4.5 percent over the next five years, Klozotsky predicts in the new Kaulkin Report.

Klozotsky says that the economy is in a transition period, with steady growth and low unemployment. Consumers also see everyday increases in the cost of gas and headlines on the unraveling of the subprime mortgage market. This series of events may not have a direct impact on a consumer but it does affect his spending decisions.

“People hold on to their cash when they sense a downturn. That makes it tougher to collect debt,” says Klozotsky. “These consumers may not face foreclosure but their access to streams of credit may slow.”

A slowdown is a mixed blessing for collectors as the placement of debt rises but the ability to collect declines as consumers find it harder to pay their bills, says Klozotsky.

The Kaulkin Report includes eight chapters covering receivables management, each from the view point of a major player in the business including creditors, regulators, debt buyers and collectors. The collector sector is further broken down by contingency, first party, and law firms.

Chapter One focuses on the U.S. consumer and the macroeconomic factors that impact his spending decisions.

The GDP grew 70 percent from 1997 to $13.8 trillion at the end of the second quarter of 2007. However, that slowed to a measly 0.6 percent annual growth rate in the first quarter of 2007.

Consumer credit keeps rising. Revolving credit, which includes outstanding credit card balances, grew to $903.9 billion at the end of June 2007 and looks to rise to $1.1 trillion by the middle of 2011, Klozotsky reports.

Non-revolving credit, which excludes home mortgages but includes secured and unsecured loans for education and other personal property, increased at “a compound annual growth rate of 7.4 percent from $766 billion in June 1997 to $1.56 trillion in June of 2007,” he writes. That should rise to $2.1 trillion by the middle of 2011.

Bethesda, Md.-based Kaulkin Ginsberg is the parent of insideARM.com.