In the very early 1990s I was actively working in my family’s collection firm in central Pennsylvania. We were experiencing some respectable growth with medical clients in our regional market. There was always conversation about where we could secure more business and continual searches for that golden apple client that could change our operation dramatically. We were fortunate to have some good, respectable competitors in our market that were also friends from the industry. On occasion a fly by night firm would surface and their actions would concern all of us. Dad used to proclaim, “That firm is so bad, they couldn’t buy a client in our area!” Then, the debt purchase industry emerged, and they could do just that!
My Dad came from a financial background working in finance companies early on and was contacted by a close friend about the emerging debt purchase market. He decided to get on board with the concept and by 1992 we transitioned his firm into a 100% debt buying/servicing entity. He was active in that market until he passed away in 2009.
I often encounter agency owners that ask, “How does debt purchase work?” and “How can I get involved in buying debt today?” By the early 2000s the debt buying market exploded. Hundreds of millions of dollars worth of deals were being transacted. It was a huge wave and many rode that wave to much financial prosperity. Now, after the economic crisis of 2008 and entry of the CFPB, the market is a virtual shell of what it once was. But there are still some opportunities. The biggest change in culture has been the prohibition of the resale of many portfolios on a state basis, which was the primary culture.
Here is how you might get involved today:
Partner with a Buyer
There are still opportunities where large debt buyers partner with regional firms to collect their investments on a contingency basis. If you plan to enter this tier of the market be prepared to be audited by the buyer as they are under pressure to conform to CFPB mandates and must assure the regulators that standards their partner upholds are the same standards as their parent organizations.
Reach Out to a Debt Broker
The number of debt brokers has reduced substantially, but there are still regional deals being shifted from sellers to buyers via these industry players. Fresh accounts are harder to find but if you engage with a broker they can assess your areas of expertise and keep a watchful eye out for opportunities. There are currently huge portfolios of judgment accounts available that remain from the earlier days of robust purchasing.
Approach Your Contingency Clients
One of the safest and most successful ways to enter the market is to approach one of your current clients about buying their receivables. A common opportunity arises when a doctor you have represented for years decides to retire. They are often interested in just liquidating their accounts. If you have worked with them for some time you know the recovery metrics on the accounts and may actually already have the data in your system. You can also secure these deals pretty economically as the dollar figures may not be huge and the pricing can be in the 1 to 3 cents on the dollar range. We were recently approached by a doctor who was retiring. He was a client for only one year. We bought his receivables for the past four years, about $300,000 worth of accounts for 1 cent or $3,000. They even boxed up all of the patient statements for us!
Learn as much about the mechanics of the debt purchase process as possible before embarking on a purchase. Reach out to DBA International Inc., the association of debt buyers. They have much to offer and produce an annual conference in Las Vegas each February. You can access them at www.dbainternational.org.
Benchmark with Colleagues
There is a good chance you know an agency owner in your market that has made a purchase or two. Reach out to them about their experiences, both the good and the bad.
Most agencies I encounter in my travels are looking for new streams of business as they navigate the tough competitive nature of our industry. Buying debt, although a longstanding practice, might be a new opportunity for your organization. Like Dad used to say, “If you can’t land a client the traditional way, maybe you can buy the business!”
We encourage our readers to submit a “best practice” idea for inclusion in this column. Until next time, I’m in a collection office near you!