So, Where?s the New Money?

Economists agree that the worst of this recession is finally behind us.

So, where’s the new money?

Looking back over the history of the accounts receivable management industry, we see cycles at play.  “Buy low, sell high” applies to this industry, as it does to others.  New money put to work at the end of a recession has the best chance of creating the best returns.

So, where’s the new money?

At one point or another, it will come in a variety of forms:

From private equity firms looking to put capital to work – Private equity firms in the U.S. are sitting on $400 billion of capital, cash that has been raised from investors but has not yet been put to work.  As the economy continues to improve, the profitability of collection agencies will improve as well, increasing their attractiveness to private equity.

From specialized sources of portfolio funding – specialized providers of debt funding for portfolio purchases have gotten burned in recent years, having funded the acquisition of debt portfolios at the top of the market.  Some have exited the industry, and others have been sitting on the sidelines.  As the economy continues to improve, debt funding for portfolio purchases will be increasingly profitable.

From business owners – owners of successful ARM companies had the luxury during boom years to take money off their balance sheets in the form of shareholder distributions, or in the form of high salaries.  Weak balance sheets have resulted from this practice and put some companies at risk.  As the economy continues to improve, owners will be investing back into their businesses.

Perhaps most importantly…

From consumers – at some point in the not too distant future, mortgage refinancings will reappear as a viable method of collection.  Judgments will kick in.  ARM companies that learned how to operate in leaner times will bring those efficiencies to a period of better collectability.  As the economy continues to improve, liquidation rates will certainly improve as well.

Exceptional long-term returns are available today in the ARM industry for investors and business owners who have the stomach for short-term risk.