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How to Conduct Debt Buyers Due Diligence

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Key takeaways:
Conducting due diligence on debt buyers involves a comprehensive assessment of their financial stability, track record, regulatory compliance, and ethical practices, ensuring that you're entering into a secure and reliable partnership. This process is crucial to safeguard your interests and minimize risks when selling your debt portfolio.

Let's assume that you decided to sell a debt portfolio, held an auction among debt buyers or collected bid offers by mail, and even received a reasonable price from potential buyers. 

But is it all about the price? How to choose a debt buyer with the most reliable reputation? This article will look at the best practices for checking debt buyers and selecting a debt broker before concluding a deal.

Step 1. Request due diligence packet from debt buying companies

After receiving the price of the three buyers who gave the highest prices for the portfolio, a due diligence package is requested from them. Why three? Because it’s not necessarily the highest bidder who may be suitable for your additional due diligence. Most debt buyers already have a package of documents, including debt buying and debt collection licenses, which the buyer already has, SOC2 certificates, operational, collection and data breach policies, certificate of insurance, incorporation documents, and others.

Step 2. Background check of debt buying company

Background verification is one of the critical elements of the verification process. To check the company's background, we recommend using the following services:

  1. Website This platform allows you to evaluate the rating of the company's activities
  2. The CFPB- website enables you to check complaints about this company and the size of the company.
  3. A necessary step is to check the owner and company pages on LinkedIn.
  4. In addition, it is necessary to do an Internet search for negative feedback about the company. If at least one is identified, it is worth considering before concluding a deal with this company.
  5. Also, check the website of the buyer's company for filings since it is through this platform that the buyer interacts with his customers.

Step 3. Insurance coverage check 

Mistakes in collecting debts are inevitable, and to cover these mistakes, you need to have sufficient insurance coverage. The recommended threshold is $ 10 million.

Step 4. Trade references

Request trade references to learn about the previous experience of buying a debt portfolio. An approximate sample of the email is located below:

Picture 1. Example of the email for trade references

Step 5. Criminal check

Engage the company's attorney to check any government requests or consent orders and have the company/officials/owners have ever been prevented from conducting business.

Step 6. Check relevant experience

If you sell auto notes, it makes more sense to sell to debt-buying companies who know how to work with such debt, or if you sell PDL accounts, it’s a different practice than auto accounts, for example. The only place where you can be less strict is the sale of real estate, as they are much less regulated

To sum up, after completing these six steps, you will be able to gather a complete picture of the reputation of buyers of your debts, their experience, and how they cover risks through internal controls and insurance. And already based on the collected information, decide with whom you want to conclude a contract for the sale of debts.

How to Conduct Debt Buyers Due Diligence | Debexpert
Written by
Henry Arora
Head of Business Development

Experienced Manager with a demonstrated history of working in the Fintech/Customer services/Debt Collections industry. Skilled in Management, Debt Collections Sales, Leadership, Team Management, and Public Speaking. Strong operations professional graduated from Madhurai Kamraj University.

  • Fintech/Customer services Expert
  • Public Speaking
  • Debt collection Expert


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