The concept of debt sales as a recovery solution has never been more prevalent. The largest credit grantors in the world use debt sales as a pressure let to keep the best internal resources on the most profitable accounts while truncating long collection cycles that can last years at a time. What varies from firm to firm is how well internal resources are able to compete with the typical price a portfolio can bring.
The widening rift
It is an accepted fact that portfolio yields will decrease over time. At the same time, whether you are using contingency agencies or working the accounts within your own department, the cost for each recovered dollar similarly increases. If that were not compelling enough, the adjusted net must now be considered as an opportunity cost for those funds to be deployed in other ways that make more economic sense to the selling firm using TVM and the true costs of ownership of the portfolio, both of which must be considered against the opportunity to sell a portfolio in a single, cash transaction.
A growing universe
Today, most creditors sell their chargeoffs at some point in the recovery process. In fact, many chargeoffs are sold the moment they become a chargeoff. What has changed in the last few years is the increasing number of industries that are turning to debt sales as a solution to growing recovery challenges.
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Chart: Consumer Debt in the USA |
