Current business regulars list a collection agency business as a hot start-up. The debt buying section of the Collection Industry saw fantastic growth over the past decade. The conventional collection agency business which can provide the agency a retainer based mostly on cash collected saw margins get thinner recently.
The 4 largest publicly traded debt customers include Encore, Asta Funding Incorporated, Asset Acceptance Capital Corp. And Portfolio Recovery Associates Inc. In 2010, together they acquired almost $20 billion in distressed debt and predicted to recover three times what they spent buying that debt according to the Association of Credit and Collection Executives, a trade group.
Encore in 2010 recorded revenue of $382 million and profits of $49 million. Inspiring expansion and profits have not been realized by all. The price of purchasing charged off debt ran up before the mortgage debacle. Prices went as high as 14 cents of the original dollar in debt. Prices are typically in the 3 to 5 cent range dependent on the age of the debt and how many times the debt has changed hands. Lately costs have settled down to be more in accordance with levels seen before the market collapse in 2007.
Making a fair return on purchased debt isn't for the inexperienced. Evaluating and buying good paper at fair price requires research. Lately, the number of customers has increased and the price of buying receivables has increased some.
The debt buying industry started in the 1990s. Firms that were doing traditional collections on a contingency basis for some of the big banks and finance corporations started to get enormous portfolios of charged off accounts. They loaded thousands of accounts into their collection databases, sent out several letters, made dozens of calls on their autodialers, levied suits in the courts, and then would credit report on accounts with court judgments.
In time, many of those accounts that were credit reported would begin to harvest some returns. This process will work, but requires due diligence and patience. The method works well for the few that receive a regular forward flow of accounts from the enormous financial organizations, a well defined process, and technology to work the accounts.
When the concept of buying debt was introduced, the big financials decided that getting 3 to 5 cents on a buck for paper that was being written off was better than nothing. The companies that were working the accounts before they were written off had an experience of how much was left in those accounts once purchased. They also understood, it is not a get rich quick plan. You could get a fair return on the accounts once purchased in the near term, but the joys of credit reporting was the back end benefit.
With the most appropriate process and good software technology, the debt customer will at last start to reap the benefits of their required groundwork. The ingredients begin with accounts that are cost-effective. The accounts should really provide a reasonable return in the near term to cover the price of the purchase. Then over the course of time the miracle of credit reporting will give the extra revenue which will make the opening process well worth their effort.
The 4 largest publicly traded debt customers include Encore, Asta Funding Incorporated, Asset Acceptance Capital Corp. And Portfolio Recovery Associates Inc. In 2010, together they acquired almost $20 billion in distressed debt and predicted to recover three times what they spent buying that debt according to the Association of Credit and Collection Executives, a trade group.
Encore in 2010 recorded revenue of $382 million and profits of $49 million. Inspiring expansion and profits have not been realized by all. The price of purchasing charged off debt ran up before the mortgage debacle. Prices went as high as 14 cents of the original dollar in debt. Prices are typically in the 3 to 5 cent range dependent on the age of the debt and how many times the debt has changed hands. Lately costs have settled down to be more in accordance with levels seen before the market collapse in 2007.
Making a fair return on purchased debt isn't for the inexperienced. Evaluating and buying good paper at fair price requires research. Lately, the number of customers has increased and the price of buying receivables has increased some.
The debt buying industry started in the 1990s. Firms that were doing traditional collections on a contingency basis for some of the big banks and finance corporations started to get enormous portfolios of charged off accounts. They loaded thousands of accounts into their collection databases, sent out several letters, made dozens of calls on their autodialers, levied suits in the courts, and then would credit report on accounts with court judgments.
In time, many of those accounts that were credit reported would begin to harvest some returns. This process will work, but requires due diligence and patience. The method works well for the few that receive a regular forward flow of accounts from the enormous financial organizations, a well defined process, and technology to work the accounts.
When the concept of buying debt was introduced, the big financials decided that getting 3 to 5 cents on a buck for paper that was being written off was better than nothing. The companies that were working the accounts before they were written off had an experience of how much was left in those accounts once purchased. They also understood, it is not a get rich quick plan. You could get a fair return on the accounts once purchased in the near term, but the joys of credit reporting was the back end benefit.
With the most appropriate process and good software technology, the debt customer will at last start to reap the benefits of their required groundwork. The ingredients begin with accounts that are cost-effective. The accounts should really provide a reasonable return in the near term to cover the price of the purchase. Then over the course of time the miracle of credit reporting will give the extra revenue which will make the opening process well worth their effort.
About the Author:
Rodney MacKenzie is VP of Sales & Marketing for CollectTech Solutions. Their flagship collection software product is Wincollect.
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