Kaulkin Advisors Discuss the ARM Industry and Ways Collection Agencies Can Survive the Recession

Many accounts receivable management companies (ARM) are finding the current recession to be hard on their finances. Kaulkin Ginsberg’s conference call, “ARM Industry Mid-Year Update: Intelligence for Navigating a Turbulent Market,” gave collection agencies insight for facing the recession as it continues throughout 2009.

In the discussion, advisors pointed out distinct trends that have carried over from the last two quarters. 

These trends include the rise in delinquency rates and charge off volume while liquidation rates continue to decline. This rise in delinquencies is largely due to the rising national unemployment rate, which was at 9.5 percent for June, and underemployment rate, which is at 5.8 percent.

Kaulkin advisors noted that the national unemployment rate is expected to reach 10 percent by the end of the summer, as it has in several states.

“Unemployment continues to remain the most telling sign of collection performance. Consumers really need the security of a job for themselves as well as those closest to them, the comfort of knowing that those closest to them are actually working, to consistently meet their own debt obligations,” Kaulkin Ginsberg’s President and Chief Executive Officer Mike Ginsberg said.

However, the rise in delinquencies has produced more work for agencies. These additional accounts have forced agencies to enter into “juggling acts,” Kaulkin Director Mark Russell told insideARM. “Collection agencies need to deal with maintaining their financial performance; maintaining their competitiveness with existing clients and growth with new clients.”

Another trend carried over from the last two quarters is the pressure media and government outlets have placed on consumer-focused ARM companies.

These outlets have been ready to catch ARM agencies in violation of state and federal laws set to protect consumers (“FDCPA Lawsuit Volume Picks Up Steam in June,” July 13), while the government continues to propose legislative changes that affect ARM companies.

According to Russell, “consumer collection agencies have to be extra careful. Since it is harder to collect in a recession, collection agencies need to be extremely cautious about their collectors violating the FDCPA;” which adds a third component that collection agencies have to juggle, “maintaining compliance with FDCPA and other state regulations.”

Given the obstacles against ARM companies in the market, Kaulkin Ginsberg Director Paul Legrady, responsible for management consulting with ARM company owners, advises collection agencies to strategically plan for not only short-term growth trends, but also what the agency wants to achieve over the next 3 to 5 years.

“Now more than ever, good planning is required to finish the recession strong,” he said.

Legrady noted that Kaulkin Ginsberg has published a free whitepaper that outlines tactics to survive a recession for interested parties.  These tactics include: updating business plans, frequently monitoring financial forecasts, evaluating the profitability of client relationships, client selection, increasing sales and marketing exposure, using efficient technology, motivating collectors and planning for the end of the recession.