Mike’s Take: ARM Firms Should Weigh Anchor Decision
On Friday, May 16, debt buyer Portfolio Recovery Associates (PRA) announced it will be closing Anchor Receivables Management, its third-party collection operation, and will redeploy the staff to its owned-portfolio collection operations ("Portfolio Recovery Drops Anchor, Shifts Staff," May 16). I can’t say that I am surprised by this decision. In fact, I applaud it.
PRA is not the first debt buyer to shed its third party collection operations and I believe they won’t be the last. In 2006, Sherman Financial divested Ventus, its contingency collection operation. Those thinking of taking their debt buying operation into contingency collections should take note. (And vice versa, as those thinking of going from contingency collections into debt purchase should also pay attention.)
Third-party collections, commonly referred to as contingency collections, is an entirely different type of business and should be owned and operated separately from debt purchase businesses. This does not mean that the two cannot coexist. In fact this coexistence can produce meaningful cross-sell opportunities, as many credit grantors both sell debt and place accounts for collection. In addition, potential cost savings can be realized by combining redundant operating expenses. However, these businesses need to run separately to achieve maximum results. Separate financial statements and separate management and collection staffs are an absolute must. This is only the beginning of the discussion of what should be shared and what should be kept separate.
By the way, Judy and Dennis hosted another wonderful invite-only event a couple of weeks back. If you missed it, be sure to attend the Debt Connection Symposium in San Diego in September. You won’t be disappointed.
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Comments
Comment from DONALD DALY on May 25, 2008 at 8:55PM EST
MY EXPERIENCE HAS PROVEN THAT IF THE COLLECTION AGENT ACTS AS THE DEBT BUYER THE INVESTMENT WILL WORK. PEOPLE WHO DO NOT UNDERSTAND COLLECTION AND BUY ASSUMING THEY WILL FIND THE PERFECT FIT COLLECTION AGENCY WILL FAIL. I'VE NEVER UNDERSTOOD HOW IT WOULD WORK ANY OTHER WAY.
Comment from john pratt on May 26, 2008 at 9:04AM EST
It is nice to have your perspective. I don't know how the plug for the symposium at the end of your article had anything to do with what you were talking about though.
Comment from Jeffrey Bovarnick on May 27, 2008 at 12:43PM EST
What does the last paragraph have to do with the article's content? It is awkward and has no relationship to the article. It appears as if you are advertising for the Symposium; which is fine provided you inform your readers.
Comment from Jay Gonsalves on May 27, 2008 at 12:46PM EST
I agree with Mike's assessment of having discrete purchasing and service operations, but for a couple of additional reasons: it may present greater opportunities for contingency agencies to service purchased debt, and also addresses some of the public relations concerns that may exist in this market by having the accounts serviced by fully trained, licensed (where required) collection professionals.
Comment from Ronald Wilwerding on May 31, 2008 at 7:49PM EST
Mike; This is not much different than many years ago when consumer collection agencies attempted to enter the commercial collection business. This transistion can be successful, but as always the case, the CEO needs top quality people in both specialties and the courage to trust both as individual entities. Sounds easy; but is takes a special executive with vision. You would think with all the information available today this might be easier, but ego's are hard to manage, particularly when it is the CEO's ego.