Rough Economy Putting Collection Agencies in Difficult Position

Economic woes are hitting the accounts receivable management industry in a very real, albeit slightly uneven, way. As decision makers ponder what moves to make, some are cutting staff because of decreased liquidation rates while some are hiring to handle surging placements.

The responses from insideARM’s fourth quarter Credit & Debt Collection Industry Confidence Survey, as well as interviews with collection agencies in the Western and Southern United States – the two areas where unemployment has increased the most – paint an interesting picture of strategic decisions in the ARM industry.

The present financial market has made bill collectors hustle for every dime they can collect on an account. Bonnie Pearson, manager/owner of Franklin, TN-based C&C Service Corporation said, “I’d rather have a smaller payment than no payment at all.”

This reduction in cash flow is prompting many collection agencies to optimize their staffing levels.

One survey participant responded, "Our staffing levels are barebones now. Low fees and declining liquidation have forced us to be lean-staffed now. We are trying to educate our clients that we cannot maximize client netbacks with such lean staffing and no money for credit reports, third party skipping and asset location."

But in some places, because of the faltering economy and layoffs, better candidates are applying and most agencies are getting more work, creating a need for more workers.

A survey respondent from a Western collection agency said, “We’re doing much better hiring people. We’re finding it easier to staff and the quality of the applicant is better than it has been historically. We have more work because of the volumes of more people being delinquent on their accounts.”

Pearson’s perspective lies somewhere in between. C&C has only four employees, one of whom is to be deployed by the military in March. Even though the collection agency is not necessarily looking to hire anyone at this time, they are not seeing any job applications coming in.

As the country moves further into recession, collection agencies find themselves in an uncomfortable predicament. According to Matt Saperstein, Senior Vice President of Global Human Resources at Phillips & Cohen Associates, Ltd., “We’re seeing an increase in volume, but a decrease in liquidation rates.”

In rationalizing this increase of hard-to-collect portfolios, Master Financial Group President Mark Goodfarb said, "It’s just because everything is not as collectible as it was, people just don’t have any money to pay their bills."

The lack of cash flow from consumers paying their debts puts the ARM industry squarely into recession. As the fourth quarter’s confidence survey shows, some collection agencies have already made cuts or are pondering layoffs as a way to cut costs.

More than 37 percent of ARM company respondents in the fourth quarter’s survey reported laying off workers late last year. Another 27.4 percent said they would be making cuts in the first quarter of 2009.

Saperstein doesn’t see the situation collection agencies are in getting any better in 2009.  “I wish I could say I did, but I think when you look at the stock market, look at the housing market, I don’t know if any of the stimulus package is going to make a change. If it does make a change, I don’t know how long it will take to make that change, but people need to pay for their mortgage and food, the basic necessities and with people losing their jobs I don’t know that a lot of bills are going to get paid.”