Collection Services Industry Has Its Own Recession Blues

 

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Collection Services Industry Has Its Own Recession Blues

You can see why outsiders think that recessions are great times to be in the collection services business. But hard economies throw up their own special challenges and problems for a collection agency.

Collection Agency Growing Pains

The first challenge for any collection agency today is the same as that faced by all businesses whose workloads are rapidly expanding: the successful management of growth. This is a lot tougher than it sounds.

Collection services executives are already at their busiest, looking after an exploding caseload, and firefighting the resulting issues. They simply don't have the time to select and recruit the right people, to find the space to accommodate them and to source the equipment new employees will need to do their jobs. But they have to make that time.

They also have to make informed guesses about how long and deep the recession is going to be. Underestimate those, and they will have continuing resource issues that will limit their growth and prevent them delivering an optimum service. Overestimate them, and some time down the line they will have the excessive overheads that come with overcapacity. One day, they might even find another collection agency at their door.

Recessions Aren't All Good for Collection Services

The collection services business is much the same the world over, and Kurt Obermaier, who runs an industry body in the UK, recently made a good point when he was interviewed by the Guardian, a British newspaper. He said:...we are far from prospering while others suffer. When times are bad, things are bad for us too. It may sound perverse, but when the economy takes a downturn we do get more to collect, but the recovery rate is considerably lower."

That problem applies just as much in America as it does on the other side of the Atlantic. The volume of cases may grow, and a collection agency's cost base with it. But if the rate of collections drops, then more of the revenue from each successfully recovered debt has to go to pay for irresolvable files.

Nobody is pretending that most collection services struggle to make ends meet during a recession. But it is not the bonanza that outsiders assume.

Collection Services Face a Less Cooperative Public

When the economy is booming, the public regards those who will not pay their debts unsympathetically. There is an assumption that they are responsible for their own predicament, and the collection services companies who pursue them are perceived as performing a necessary function.

But during a recession, most members of the public know--or know of--someone who is in real trouble through no fault of their own. Or if that person does bear some blame, then his or her mistakes are often understandable.

Not a Victim--but Understandably Foolish

Take the case of Edmund L. Andrews. Anyone who reads his book, Busted: Life Inside the Great Mortgage Meltdown, is almost bound to sympathize with his situation. He readily acknowledges that he is not a victim, and that he was foolish in relying on continuing house price inflation to rescue him when he took out an unsustainable mortgage. But so many people did the same thing that it is hard to blame him.

The thing is that Edmund L. Andrews is a financial reporter for the New York Times. He knew Alan Greenspan and Ben S. Bernanke personally. He knew about the housing bubble. He knew about the economy.

"If," Joe Public reasons, "Someone like Edmund L. Andrews can go down for $500,000 then who can blame my less well-informed neighbor for skipping town to avoid his much smaller debts? And why should I pass on his forwarding address to the collection agency employee who comes knocking on my door?"

Recessions may make collection services more profitable. But when times get tough they do not have it all their own way.

Sources
The Guardian
The New York Times

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