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Debt sale – worth the risk? 13 JUNE 2018

Debt sale – worth the risk?

It may be time for those organisations who have not tested the debt sale market or did so a while ago and decided it wasn’t for them, to reconsider.

The market has changed considerably as a result of increased competition, regulation and the demand for compliance. Seller and purchaser priorities in terms of customer care are now closely aligned; to survive and thrive, debt purchasers have had to deliver the highest standards of compliance, governance and customer service. Those that haven’t have fallen by the wayside. Aggressive recovery by purchaser organisations is long gone.

Today’s debt purchasers provide:

  • Compliance: Compliance and customer care are now at the heart of the debt purchaser’s strategy and the leading providers have some of the most advanced and robust compliance frameworks in the debt recovery sector. Coupled with the introduction of flexible technology to enable detailed and timely data analysis, the risk landscape for debt sale is very different to that of 5 years ago. Over the past 2-3 years in particular, debt purchasers have invested heavily to ensure compliance standards not only meet but exceed those of creditor organisations and Financial Conduct Authority (FCA) regulation. It has been and continues to be key in obtaining and maintaining their business.
  • Assurance: Organisations can not only expect debt purchasers to have full FCA authorisation, Credit Services Association and Lending Standards Board membership but hold leading customer standards awards. For example, Cabot Credit Management have won the Treating Customers Fairly Award and hold Gold and Champion Investor in People accreditation; Lowell achieved an exceptional rating in the 2017 Investors in Customers survey; and Intrum (formerly 1st Credit) has achieved the first ISO standard for dealing with vulnerability and won Best Conduct and Compliance Culture and Best Customer Service for the 7th time in 2017.
  • Tailored engagement: Today’s debt purchasers have the data sets and experience to enable the development of highly effective strategies and segmentations to ensure appropriate, targeted and optimised recovery. Together with their investment in modern operational infrastructures and technologies, such as speech analytics, automation and self-service facilities, they are now providing some of the most efficient and flexible customer journey experiences in the recovery sector.

As with any recovery strategy, debt sale will never be without risk but with streamlined, intelligence-led processes and common customer service goals it is now a viable proposition across all sectors.  Advances in the scope and depth of data analysis, together with informed management, and careful purchaser selection mean that there is material value to be gained from those dusty debt books. Certainly, something to consider when faced with challenging recovery and cost reduction targets, especially for those organisations in untested markets.

With all this in mind, the 2018 debt sale dilemma is perhaps not yes or no, but how and what?

Not all accounts are suitable for sale whether for ethical and/or operational reasons and different debt purchasers excel and will price differently according to debt type and characteristics. Analysing and selecting accounts for sale, preparing and segmenting into the most marketable lots and attracting and shortlisting the most suitable purchasers to meet your organisation’s objectives are key to your initial and ongoing debt sale potential.

To that end, a debt broker who understands your organisation, is able to design a tailored sale strategy and independently benchmark your options is perhaps the most valuable and overlooked resource consideration.

A broker will manage the process, minimise post-sale administration, and provide independent advice to ensure your objectives are met. They will test the market, generate competition and prepare your accounts so that returns are optimised. Investment in securing yourself an independent broker that understands your business will pay significant dividends in ensuring that debt sale efficiently releases those untapped funds today and establishes a sustainable, resilient revenue stream for the future.

Purchasers conduct comprehensive due diligence and have a wealth of experience to inform their strategy. Sellers should be equally diligent and your first sale will directly impact future opportunities. An independent broker may well be the wisest investment you can make when venturing into the debt sale arena.

Can you sell without a broker? Of course. Can you be sure that a debt sale without a broker is or was the best deal? Not quite so simple to answer.

In response to enquiries, Arum have established a specialist team to help clients assess and manage debt sale opportunities. The team is led by one of our senior consultants experienced in strategic and operational debt sale, and supported by a former Director of Advisory and Debt Sale.

If you would like to discuss your debt sale opportunities or have queries regarding our services, please contact us.

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