New economic realities have impacted revenue generation across the accounts receivable management industry in recent years. Even as gross collections reach record highs, aggregate commission rates have dropped to a low of 18.8 percent. Industry profit margins have also been compressed and employment rates have declined 4.5 percent in three years.
Since cost cutting can take a company only so far, ARM firms are scrambling to find new revenue streams in a difficult economic environment.
Collection agencies have been addressing the declining revenues by diversifying into different asset classes. This is a great idea that generally pays dividends going forward, but it takes time and effort, and more importantly, investment. So collection operations should be looking for revenue opportunities that do not require additional investment.
For many accounts receivable management firms, dormant judgments represent an opportunity to capitalize on existing investments and realize unrecovered revenue. Dormant judgments are judgments for a collection matter that are not executed or enforced within the prescribed statutory time limit. Most collections judgments have a statute of limitations between seven and ten years, with the time varying state-to-state. It is commonly accepted knowledge in the ARM industry that close to 80 percent of judgments go uncollected.
As many companies in the ARM industry shift strategies to embrace the legal collection channel, judgments can pile up and slip through the cracks before being collected.
Dormant and stagnant judgments represent untapped returns on investments your business has already made. Before beginning collection efforts, of course, it is imperative that you renew the judgment. But the efforts and expense to complete the research process to revive a dormant judgment or execute on a stagnant judgment are wasted if recovery is not completed. So targeting your best recovery opportunities expedites collections and drives a maximum return on investment.
Using an integrated information solution will start you down the two most important paths in activating dormant judgments: finding the debtor and locating the asset.
As the level of debtor transience continues to increase, the task of tracking down a debtor has become infinitely more difficult. And many may actively be attempting to thwart contact attempts as today’s consumers are much better informed of compliance requirements of the Fair Debt Collection Practices Act (FDCPA) and the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). So any dormant judgment activation attempt must include access to a comprehensive suite of location solutions.
Likewise, identifying assets quickly can often be the key to successfully collecting on a dormant judgment. A large part of clarifying asset detail to speed asset location and strengthen recovery efforts depends on access to granular data, such as place of employment, real estate property ownership details and insight into ownership of other types of property, including automobiles, boats and recreational vehicles.
Executing a dormant or stagnant judgment depends on effectively balancing the goals of protecting the initial judgment investment and recovering the debt with recovery expense management and avoiding the impacts of non-compliance. A solution that delivers both data reach and decisioning tools can greatly streamline dormant judgment research and collections processes.
For more information on collecting dormant judgments, please download a copy of a new free whitepaper from LexisNexs, “Unlock hidden revenue potential on your balance sheet.”
Linda Straub Jones is a Collections Solutions Product Consultant at LexisNexis Risk Solutions.
This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter focused on the U.S. consumer environment. Make sure you’re registered to receive insideARM’s newsletters on your User Profile page.