SIF Strategies Differ Between Collection Agencies and Debt Buyers

The accounts receivable management industry has been forced into uncomfortable territory over the course of the recession; offering debtors an opportunity to settle their accounts for a fraction of what’s owed or accepting payment plans instead of the customary balance-in-full remittance. But there is a marked gap in deploying settlements and payment plans among third party collection agencies and their debt buying counterparts.

Much has been written recently on the emergence of settlements-in-full (SIFs) and payment plans in the ARM industry (“Ask the Experts: Can SIFs Benefit My Agency?” Feb. 16; “SIFs: How much is too much?” Feb. 1).  And in insideARM’s latest Credit & Debt Collection Industry Confidence Survey, more than 66 percent of ARM companies reported offering more payment arrangements in the fourth quarter of 2009, while 40 percent offered more SIFs in the same timeframe.

But when the responses from ARM companies are broken down by specific company type, a distinct pattern emerges among collection agencies, debt buyers, and collection law firms.

Offering more payment arrangements is relatively constant across the three company types. The industry-wide average in the 4th quarter saw 66.2 percent of all ARM companies reporting an increase in payment arrangements, with 66.3 percent of collection agencies reporting an increase, 62.5 percent of collection law firms, and 69 percent of debt buyers. But when it comes to SIFs, the differences become more dramatic.

Perhaps encouraged by desperate creditor clients, collection agencies led the ARM pack in offering more SIFs in Q4. More than 42 percent of collection agency respondents reported an uptick in the number of SIFs offered, compared to 37.5 percent of law firms and only 27.6 percent of debt buyers.

Debt buyers own the accounts they work, and many project collections years down the road. They know that the economy will eventually turn around. So collection management does not feel the pressure to quickly resolve accounts the way a collection agency counterpart may.

But debt buyers showed aggressiveness in deploying their SIFs that collection agencies and law firms did not, according to the survey. Nearly 45 percent of debt purchasing respondents reported lowering SIF thresholds in the fourth quarter of 2009, compared to only 25 percent of collection law firms and 32.4 percent of collection agencies.

This phenomenon is also probably client-driven. In a comment to the collection strategy question, one collection agency respondent noted: “Lower SIF thresholds are usually dictated by the client. Dialogue with the client is tantamount to ensure their understanding of today environment.”

See the full results of the Winter 2010 Confidence Survey at http://www.insidearm.com/go/confidence-survey/winter10.