ARTICLE...
Surviving the Storm
A new piece of research showed the state of the market – and that while there is still trouble 'out there', those who use good data and more sophisticated techniques are much more likely to survive.
The third OC&C Credit Management and Debt Collection Index once again showcases the enormous potential for growth within the industry. Large parts of credit management are not outsourced, while a high proportion of so-called 'delinquent debt' is never collected in full.
While Industry-wide concerns – such as decreasing volume and value of debt sales and lower revenues for DPs and DCAs – have been widely acknowledged for some time now. However what hasn't been addressed before is the scale of these issues.
All in all, there was a huge drop in the values of debt sold – £8.9bn in 2008, compared to £3.9bn in 2009. There was also a drop in average purchase price – 10% in 2007 to 7.5% in 2009 – while all indicators currently seem to indicate that revenue is likely to increase through 2011 and again, more sharply, in 2012/13.
These figures are also a good indication as to what real actions businesses are taking to survive – and this report clearly highlights the concerns of the industry as a whole.
In some cases, purchasers have been reworking their debts as funding has been harder to find. In addition, the availability of portfolios to buy has noticeably dropped off too. These factors mean their assets have now reduced and these businesses are likely to need to start working on fresh debts very soon.
And, while collections figures are starting to show the first promising signs of improvement, it may not be enough to tempt additional funding quite yet.
The flow of deals has been weak in 2010 and – despite a few months of improved collectability – few investors are convinced they can begin investing with any confidence.
But what does all this mean for the long term? Well, moving forward, many firms may actually emerge stronger from the recession. Of course, this will depend on their ability to form good working relationships with both sellers and funders, as well as their skill in meeting the industry's ever-evolving compliance needs and to segment their debt portfolio effectively.
The industry also needs to be ready to step in and capitalise on the expected flow of debt from the public sector.
Finally, the importance of empathising with customers should not be underestimated. Companies need to prepared to treat and understand debtors as individuals – and that, combined with other preparations, should provide the contingency DPs and DCAs need to thrive – not just survive.
OC&C's report is certainly eye-opening and – by combining a review of the recent past with a review of current financial and operational performance – it can give also give an interesting glimpse into the future of the industry.
Original article courtesy of Credit Today. For further information visit www.credittoday.co.uk
