Settlements, Payment Arrangements Becoming the Norm in ARM Industry
Debt collectors are holding their noses and agreeing to less money from debtors in the face of an economic environment that is severely straining the American consumer.
Accounts receivable management companies are shifting their collection strategies to include more settlement offers and payment arrangements as debtors struggle through a recession that shows little sign of letting up on the American consumer.
In insideARM’s most recent Credit & Debt Collection Industry Confidence Survey, more than 72 percent of collection agency respondents said that they have tried “more payment arrangements” in the past six months in an effort to increase revenue. Nearly 68 percent of debt buyers responded in a similar way.
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The Confidence Survey has been asking ARM companies how likely they are to modify collection strategy in the face of declining recoveries. And in the third quarter of 2009, collection agencies seemed very eager to try new approaches; more than 85 percent said that they were somewhat or very likely to modify collection strategies.
But for the first time, the Confidence Survey for Fall 2009 asked which specific strategies companies are employing.
“More Payment Arragements” was the most popular response by far to the question. But other strategies are also proving to be popular. Exactly 54 percent of collection agencies and 44.1 percent of debt buyers said that “More Settlement-in-Full Offers” were being extended to debtors. An additional 41.2 percent of debt buyers and 39.4 percent of collection agencies said that they were also trying lower SIF thresholds.
Interestingly, in a comment field attached to the question, one survey participant noted that their firm was “Allowing payment arrangements on Settlements.”
ARM firms also indicated that they were leaning on technology more in the downturn. When asked “Which of the following technologies are you considering to improve collection performance?” only 34 percent of collection agencies said that they were not adding technology.
The most popular technological enhancements among collection agencies were Business Analytics Solutions (38.8 percent) and Collection software system upgrades (37.3 percent); for debt buyers is was also Business Analytics Solutions (50 percent) and Collection software system upgrades (35.3 percent). Only 26.5 percent of debt buyers indicated they would not bring in new technology to help their collections.
For the complete results of the Fall 2009 Credit & Debt Collection Industry Confidence Survey, please visit http://www.insidearm.com/go/confidence-survey/fall09.
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Comments
Comment from Jim Herst on November 13, 2009 at 12:28PM EST
Business debtors, in a desire to stay in business, have found that by seeking discounted settlements with creditors they show good faith. Relationship renewal is established, the creditor retains a customer, the debtor retains a source.
This is far better than no payment or BK. Professional Debt Management firms, acting as an authoritative third party, enable creation of a trusted relationship between a debtor and his reditor's agents.
Comment from MJ on November 13, 2009 at 1:28PM EST
I don't understand. The key to establishing the best possible arrangement still lays in demanding the balance. Proper negoatiation, regardless of the economy, starts at BIF and ends at BPA (best possible arrangment). "Accepting more payments" is nothing more than a natural byproduct of proper negotiations in a poor economy - the BPA is naturally going to be smaller. If agencies are encouraging collectors to simply take smaller payments, however, then the art of negotiation is lost. Worse, when the economy improves those agencies will have a floor filled with weak negotiators.
Comment from Anonymous on November 13, 2009 at 4:08PM EST
IF the settlements referred to in this article involves discounts I'd like to know what the average discount is and whether these discounts have increased from the past.
Adherring to proper collection standards should weed out the weak negoitiators. Those who can pay or can be made to pay will pay.
Those who can't...
Comment from John McNamara on November 16, 2009 at 1:39PM EST
This makes sense. Without HELOC's, we have been reset to the early 1990's. This means more skill, patience, scoring and training to make up for consumers' tough access to credit. One could argue that for the last 10 years, even average collectors did well, acting almost like order takers, sending the consumer to any number of lenders to borrow the easy cash. Even jobless consumers with spotty records could gain access to home equity cash. Now more than ever, commitment to training, hiring the best, skills based routing and scoring will be the order of the day.
Comment from KJW on November 16, 2009 at 1:59PM EST
Settlements should be a last resort. Colectors overall have lost the art of negotiating post dated checks. If you sell the concept of postdates to a debtor then you would not need to fall back on settlements. If the debtor is educated to understand that a settlement is still a negative mark against the person's credit they will accept the alternative of a "paid in full" post date arrangement. Remember getting "settlement happy" will reduce total potential fees from each account.
Comment from chris on November 16, 2009 at 7:47PM EST
Just because you don't get a BIF doesn't mean you're a poor negociator. Debt is, for better or worse, a commodity. All merchants will discount products to move them out improving their balance sheet. A bird in the hand is often better than two in the bush.