How to pick a debt buyer

Charged-off consumer and commercial receivables remain at historically high levels, which means more companies are looking for solutions to the strain of recovering non-performing accounts and loans.

Selling the debts outright to a debt buyer is an increasingly popular solution. In doing so, a company can gain an immediate infusion of cash and plug the drain on the many resources necessary in an asset-recovery effort, among other benefits.

For the banks, financial institutions, non-bank organizations, hospitals and physician groups ready to sell their distressed assets, it’s important to select a reputable and well-capitalized debt-buying partner.

What To Look For In A Debt-Buying Partner

A qualified debt-buying partner should provide:

• Time and resources to help a potential client better understand the debt-selling option.
• A track record of protecting a client’s brand: “Our customer is your customer.”
• Quick turnaround on pricing and funding, and highly competitive bids.
• A single point of contact from business development to make all processes flow smoothly.
• Strong asset analysis and modeling capabilities to enable smart decisions about debt purchases.
• A direct contact in client service to work directly with the company to coordinate the transfers of accounts and data – known as “media” – that follows the purchase of assets.
• Staff trained to follow Fair Debt Collection Practices Act guidelines and treat all customers fairly and professionally throughout the asset-recovery process.
• References and testimonials.

What To Expect When Selling Distressed Assets

The earlier a company moves to sell its charged-off accounts, the better the price from a debt buyer. This is because the amount of liquidation dollars offered to own the account portfolio differs depending on how many third parties have tried to collect the debt, as well as account demographics, how well the company is performing, and other factors.

Any company considering selling a distressed asset portfolio should expect a free evaluation before any sale takes place. The debt buyer’s focus will be on purchasing charged-off debts.

When a company agrees to sell, it is usually paid the full sum in only a matter of days. The company then has a new source of revenue to invest in short or long-term needs or re-deploy into the marketplace, which boosts liquidity.
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Additional Considerations

In addition to thorough analysis of how your company can benefit from selling its distressed debt, it’s important to give the debt-selling strategy these careful considerations:

• Verify the debt buyer’s experience. Ask detailed questions to understand the company’s history and level of industry experience.

• Confirm the debt buyer also services accounts. Some debt buyers only purchase the debt and utilize independent collection agencies to service it. As a best practice, opt for a company that will both buy and service the paper.

• Determine the best time to introduce the debt buyer into your revenue cycle. Most companies engage debt buyers when their accounts have reached “charged-off” status, having gone through an internal collection process.

• Determine the value and details of your debt. How many accounts do you have? How old are they? Which ones should you sell to a debt buyer versus those to be collected by an agency?

• Be willing to open your books and to provide comprehensive information. The more information provided, the more complete the portfolio evaluation, and the better the pricing structure. Reputable debt buyers have legally binding practices to protect customer information.

• Ensure your debt buyer adheres to mandates and regulations such as the Fair Debt Collection Practices Act to ensure customers’ rights are preserved.

• Investigate secure communications options provided by your debt buyer. Additionally, investigate the debt buyer’s systems and security procedures.

• Determine whether you can repurchase accounts. Positive customer relationships are key to your business. For your peace of mind, ask a potential debt buyer whether you can repurchase accounts at any time and for any reason; if there is a cap on quantity; if there is a price mark- up; and if you can exchange for other valid accounts vs. paying for them in cash.

• Ensure the debt buyer operates nationwide or in the regions you require. In addition to national regulations, many states have specific laws regulating debt collection.

With these considerations in mind, companies can feel prepared to explore selling their charged-off accounts to a well-capitalized debt-buying partner and realize the key advantages of an immediate cash infusion to bolster the bottom line, protection of their brand as debt is recovered and the freedom to move on to more profitable tasks.
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Categories: Company Perspectives, Finance