Credit and Debt Collection Firms? Performance and Outlook Improving

Companies in the accounts receivable management industry are reporting better performance in the third quarter of 2009 and a rosier outlook for the remainder of the year in the preliminary results of insideARM’s quarterly Credit & Debt Collection Industry Confidence Survey for Fall 2009.

The early results mark a slight turnaround from the gloomy results seen in Summer 2009.

The survey, which is still open for participation (Take the Survey), has been taken by more than 250 ARM professionals so far. The survey will remain open through Friday October 23.

Most ARM survey takers reported better performance than in the last few quarters. When asked to rate their firm’s performance in the third quarter of 2009 on a scale of 1 to 5, with 5 being the best, collection agency participants reported an average score of 3.21, compared to the 3.08 reported for the second quarter. Likewise, debt buyers reported an improved average performance rating of 3.13 in Q3, compared to 3.03 in Q2.

Collection law firms had the lowest average performance rating for Q3 at 2.92. But this also was up from the Summer 2009 survey when law firms rated their performance at 2.75.

Despite the increase in performance ratings, ARM firms are still reporting a historically challenging collection environment. In comments encouraged on an open-ended question about performance, many survey participants struck a familiar refrain:

“COLLECTION RATES CONTINUES TO BE WELL BELOW 07 & 08” – Collection Agency participant

“Accounts are not as collectable, probably 60% of what they used to be.” – Collection Agency participant

“Consumer recoveries are down 20%.” – Collection Law Firm participant

“Liquidation rates are down 25-40%.” – Debt Buyer participant

Placement volumes, however, are way up, according to the survey participants so far. More than 55 percent of collection agency participants said that placements were up “moderately” (40 percent) or “significantly” (15.8 percent) from the second quarter.

Other Interesting Findings

There are two new questions in the Credit & Debt Collection Industry Confidence Survey for Fall 2009.

Since the survey began in early 2008, it has asked how likely ARM companies were to change collection strategies in the face of a challenging economic environment. The Fall 2009 survey quantifies those changes and asks participants to select which specific changes they have already tried.

The most common tactic deployed by ARM companies, by far, has been “More Payment Arrangements.” More than 71 percent of collection agency, debt buyer and law firm participants so far have tried to increase the number of payment arrangements extended to debtors. “More Settlement-in-Full offers” was the next most common with slightly more than 50 percent of ARM company participants reporting a deployment of the tactic.

The Fall 2009 survey also asks about the current healthcare reform debate currently happening at the highest reaches of the federal government. With so many employees, healthcare reform is bound to impact the ARM industry, one way or another.

Asked to choose how they would like to see the healthcare reform debate shake out, collection agency participants so far are siding with Congressional Republicans for the most part, with more than 44 percent favoring a plan that includes minor tweaks focused on cost containment, like tort reform and allowing insurance companies to compete across state borders. Only 18 percent of survey participants currently support a plan with a public option (although, interestingly, 46 percent of collection law firm participants support such a plan).

The Credit & Debt Collection Industry Confidence Survey for Fall 2009 will be open through October 2009. Please take a few minutes to participate if you have not done so already (Take the Survey).