ASK THE EXPERTS: Specific Advice on Surviving the Downturn

Ask the Experts is an interactive section that allows readers to ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry – and a sister company of insideARM.com — as well as other seasoned industry executives.

Thank you to one of our readers for our latest question:

Question: What measures can ARM companies adopt to successfully outlive the current economic environment?

Answer: (from Paul Legrady, director at Kaulkin Ginsberg) The recession is requiring credit issuers, contingency agencies, debt buyers, and collection law firms to handle two challenges at the same time: increased placements and lower collectability. Unfortunately, lower collectability places downward pressure on a company’s revenues, while increased placements require the company to spend more in order to work accounts that have been placed. These trends have the potential to decrease a company’s profitability considerably.

Here are eight suggestions for handling these challenges as effectively as possible in this difficult economic environment.

1. Update your business plan in light of the current economy. A business plan that rests on your shelf or a folder on your network is probably out of date. A fresh look at your business plan could lead to make changes that would improve the overall direction of your company.

2. Create monthly forecasts in financial statements and measure your performance relative to these targets. By analyzing recent liquidation rates, placement levels, and other data, you can make reasonable forecasts in the future financial performance of your company.

3. Understand your profitability, client by client. Contingency collection agencies should regularly evaluate the profitability of each client relationship. Without doing so, agencies will not know which clients are adding to their profitability, and which are subtracting from it.

4. Decline work from prospects or clients that are not giving you profitable business. If a client or prospect offers fees that are too low, or paper that is uncollectable, agency owners should decline this work, and focus their attention on more profitable engagements.

5. Ramp up sales and marketing efforts. ARM companies that are looking to grow in this recession or as the economy rebounds should be hiring proven salespeople, increasing their exposure in industry publications, and selectively attending industry conferences.

6. Maximize your prior investments in collection technologies. Agencies may have purchased a dialer or initiated an online collection campaign in prior years, without optimizing their use of these technologies in the meantime. This is a perfect opportunity to do so.

7. Keep your collectors highly motivated and reward their successes. Collection floors should be motivated to collect paper at all times. Even as liquidity decreases, commission rates, bonuses and other incentives should be adjusted to keep collectors buzzing.

8. Realize that the best is yet to come. The ideal time to be in collections is when the economy is emerging from recession – when placements are high and when liquidations are improving. When the economy rebounds, the best companies in this industry benefit greatly.