2010 – a brighter future?

Despite 2009 being a tough year, optimism is already emerging for 2010. And, of course, the need for appropriate pricing, cost control and maximising revenue remain critical business fundamentals in order to derive profitability from debt purchase.

Feedback from the Deloitte session at last September's CSA conference confirmed 2009 as a tough year. Increased defaults on arrangements and lower settlements were felt to be the two biggest operational issues faced by Debt Purchasers. In terms of the corporate side, limitations on availability of debt and the pricing of debt were identified at the major concerns.

However it's not all doom and gloom. The general consensus amongst the audience was that we are over the worst and the majority of participants in the session forecast an increase in their buying, when compared to 2009. In addition, nearly 80% of the audience believed the pricing of debt would stay stable – or decrease slightly – over the next 12 months.

But, in order for the increased purchases to increase profit, key business fundamentals need to be followed.

Appropriate deal pricing
With the sudden shift in econometric factors during 2008-09, a number of debt purchases have seen shortfalls between the expected and actual collection rates. By adjusting pricing models for these econometric factors, the value of prospective portfolios can be better evaluated, with bad deals being avoided.

Cost control through efficient processes
With rising operational cost, the higher cost of capital, increases in regulatory scrutiny, lower recovery rates, longer collection cycles and rising uncertainty with respect to pricing and risk assessment, it is necessary for all organisations to review their operations and streamline their operations through techniques such as lean-six sigma.

Maximise revenue through predictive analytics
Analytics can be used to substantially improve organisations' work out, such as the use of specialist Debt Collection Agencies, optimising panel structure, evaluation of champion versus challenge strategies etc. This data can also be utilised to improve collections strategies through the better understanding of self cure propensities, risk based customer classification and early identification of riskier customers.

Maximise revenue and minimise costs through efficient customer communications
Too many debt purchasers apply a single communication strategy for all delinquent customers. This ineffective communication strategy often leads to inefficient collections, lower performance and inefficient uses of staff or technology. All this ultimately results in higher operational costs.

Original article courtesy of DBSG.

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