It’s time to act
Sooner or later, every successful business encounters issues with delinquent receivables. When such issues arise, if they are not resolved internally and all efforts to communicate with the borrower have proved to be in vain, it’s time to take action.
Any business can take legal action or hire a collection agency to solve the problem, but these tactics cost time and money. And nobody can guarantee a positive result.
When a company decides to stop wasting money and time on problematic clients, selling the debt may become a worthy alternative to simply writing off the debt as a loss.
Who buys Debts?
Debt buyers are companies that purchase debts from lenders for a fraction of the full value of those accounts. The value of a portfolio is assessed based on several parameters, including the age of the debt and the volume of accounts. Debt buyers differ from each other by profile — some are simple middlemen, others are collection agencies or law firms.
What debts are eligible for sale?
Any debt backed by a contract that includes language that debt may be sold or outsourced are available for selling:
- Personal Loans
- Installment Loans
- DDA (Checking Account Overdrafts)
- Bad Checks (B2B/C2B/NSF/Check Guarantee)
- Credit Cards (Business and personal)
- RTO (Rent to Own)
- Bail Bonds
- Student Loans
- Auto Loans (Secured and Deficiencies)
- Mortgage/Property Liens
Selling debts: risks and benefits
The main reason why companies sell debt — the instant return of money. The older the debt, the harder it is to retrieve money from the borrower. Debt buyers know it — that is why older accounts cost less.
Once the debt is sold, the debt buyer owns the account, and the borrower is now responsible for submitting any payment to the new owner. However, many clients may not be aware that their debt is sold, and establishing communication between debtor and new debt owner takes time. Meanwhile, your organization loses control over this communication. It is crucial to pick your debt purchaser carefully. The disappointed client can spoil your reputation by revealing information about violations committed by the collector.
Debtors can take legal action after working with a collection agency violating FDCPA rules of communication with consumers.
Who to sell debts?
To make the right decision, you can rely on several lists of organizations establishing standards of ethics and professionalism in the collection industry. If the company is listed in one of these, there is a high possibility that you will be dealing with professionals:
- RMAI (Receivables Management Association International), previously known as the DBA International (Debt Buyers Association)
- ACA International (The Association of Credit Collection Professionals)
- BBB (Better Business Bureau)
The majority of verified debt purchasers observe all rules and standards. To reduce the risk, you can add a clause forbidding the resale of the debt, but this also reduces its market price. If you are familiar with the buyer, you can also agree upon the resale of debt and let him choose the further strategy on his own account.
How to prepare a debt portfolio for sale?
To make your portfolio more attractive to buyers, you have to allocate available accounts into lots. It is much easier to sell lots with one type of debt (credit card, for instance) located in the same area or the same age. A debt purchaser will likely pay more for accounts with detailed client information, a full history of bank accounts, and documentation.