Collection Agencies Shifting Strategies in Rough Economy: Survey

Accounts receivable management companies in the U.S. are more likely to alter their collection strategies in the coming months to offset weaker results from cash-strapped consumers, according to the results of Kaulkin Ginsberg’s Quarterly Accounts Receivable Management Industry Confidence Survey.

More than 90 percent of collection agency respondents said that they were “Somewhat Likely” or “Very Likely” to modify collection strategies to more effectively align with economic conditions. Asked the same question a quarter ago, 83.9 percent of respondents answered the same way.

The most recent survey, conducted at the end of the third quarter, was taken by more than 750 ARM professionals, including bank and credit issuers; collection agencies and debt buyers; and vendors to the accounts receivable management industry. It follows the same survey that was conducted at the end of the second quarter (“Survey Shows Tough Times But Rosier Outlook for Collectors,” June 17). The most recent survey afford the opportunity to compare results quarter-over-quarter for the first time.

Survey respondents were also given the opportunity to express their thoughts in a less structured way at the end of the questionnaire with an open-ended free response. Many discussed their company’s shift in collection strategies. “We have already modified our collection strategy to emphasize down payments and periodic payments in light of the decreasing liquidity of our debtor populations,” wrote one survey participant. “While placements have doubled this year and will again double next year, front-end collections are staying the same. Middle class America is out of money. The only thing leading the pack is our litigation debt,” wrote another.

The survey revealed that a positive development in the ongoing consumer credit-driven economic downturn is that placements from bank clients are way up for collection agencies.

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More than 60 percent (61.1%) of debt collection agency respondents said that account placements were “moderately” or “significantly” higher in the third quarter of 2008. This is up from the 59.3 percent of collection agencies that answered the same way in the second quarter survey. Just 14.9 percent of survey respondents reported any type of decrease in current placements.

Collection agencies are also looking forward to even more placements over the next 12 months. For the full survey results, download the free survey report.

Collection agencies also thought highly of their current performance and the prospect of better performance going forward.

Only 19.8 percent of collection agency respondents classified their current performance as “Poor” or “Weak,” a small but noticeable increase from the 17.2 percent that answered the same way in the second quarter. On the other end of the scale, 43.1 percent said that current performance was “Strong” or “Excellent.” This represented a small decrease from the 44.9 percent of agencies that answered the same way a quarter ago.

Of all the questions on the survey, the ones predicting collection performance six months and 12 months down the road showed the largest variation between bank and creditor respondents and collection agency respondents. Banks had a much gloomier outlook on future performance compared to collection agencies. Download the full survey results to see how much they differed.

Editor’s Note: Kaulkin Ginsberg is the parent company of insideARM.com.