Accounts Receivable Management
Debt collection has been an integral part of the U.S. economy since the time that consumers and businesses first paid for goods and services on credit. While the early forms of debt collection were legal in nature and resolved in a courtroom, small collection agencies sprouted up across the country as installment plans and retail accounts became more common. Original bill collectors were called “door knockers” because they went door-to-door to collect debts. This form of debt collection disappeared in 1977 with the establishment of the Fair Debt Collection Practices Act (FDCPA), which regulated how, when and where a collector can contact a debtor and mandated specific notice and disclosure requirements. As a result, collection agencies incorporated letters, phone calls and legal collection efforts into their liquidation strategies instead of door-to-door efforts.
While this transition was challenging, the ARM industry was ultimately reshaped for the better. As our credit economy grew, collection agencies were forced to improve their business processes. Advancements in technology helped to support dramatic increases in new business and the new collection strategies enabled collection agencies to improve their financial and operational results while adhering to the federal and state regulations. Collection agencies expanded their service offerings to better meet their clients’ needs and respond to changing market economic/market conditions, including offering pre-collect courtesy calls and portfolio acquisitions services.
Today, the ARM industry has become a global solution, comprised of small, mid-market and large companies that offer four primary services for commercial and consumer credit grantors as well as federal, state and local government agencies:
Third Party Collections – Otherwise known as contingency collections, this service is provided by collection agencies who contact a debtor on behalf of a client under the name of the agency. Third party agencies are paid a contingency fee, or a percentage of the amount collected. Consumer agencies need to be properly licensed and bonded, and adhere to the FDCPA.
First Party Collections – This service is provided by collection agencies or outsourced call center companies, who contact debtors on behalf of a client under the name of the client. The callers are very courteous and focused on maintaining the client relationship. The client usually pays the agency under a fee-for-service arrangement, although some engagements have a contingency fee component.
Legal Collections – This service is provided by law firms, and may or may not involve legal action. Typically, a law firm will send the debtor a letter acknowledging they are representing the client and explaining that further legal action may be taken if the debtor does not resolve the outstanding debt.
Debt Purchasing – This service is provided by debt purchasing companies who acquire portfolios of delinquent or charged-off accounts from credit issuers. This service has been in existence since the 1960s, but became more popular in the 1980s when the Resolution Trust Corporation (RTC) sold large portfolios of delinquent debt to fund the government’s bailout of failed savings and loans.
While the ARM industry continues to evolve, Kaulkin Ginsberg is available to advise those ARM companies who are committed to maximizing their growth and exit objectives, as we have been since 1991.
Financial Asset Management sale to American Capital Strategies (NASDAQ: ACAS).
- A letter from FAMS
(PDF – 343k)
West Corp‘s (NASDAQ: WSTC) strategy to enter the ARM industry, resulting in the acquisition of Attention, LLC.
United Recovery Systems, L.P., a debt collection agency specializing in bank card / credit card contingency collections, was acquired by Audax Group, a private equity group providing investment capital for middle market companies.
M&A Pricing Snapshot
March 30, 2015
Buyers of accounts receivable management (ARM) firms are continuing their acquisitive ways, completing more transactions in a one-year time period in 2014 than at any point since the start of the Great Recession.
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Assessing the Consumer Credit Market with an Eye to ARM
March 25, 2015
Since the Great Recession, the road to recovery for the accounts receivable management (ARM) industry has been particularly bumpy. Adjusting to economic fluctuations has been challenging for service providers and big business clients alike, especially when state and federal government agencies continuously impose stronger regulations in an effort to shift blame and find their scapegoat.
ARM firms who adapted their business practices are capitalizing on... ....
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Moving Forward with Debt Financing
March 19, 2015
In January, we discussed the three main options available for financing an acquisition. Most of us don't have an extra $1 million on hand, so it's important to understand debt financing and the impact of interest rates - above and beyond making you pay more.
How do interest rates work?
The interest rate you pay on loans is the product of the real and nominal interest rates. Banks like to use the 10-year treasury rate as their benchmark metric for the.......
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Hyatt Regency Washington on Capital Hill
April 14th-16th, 2015
Why is right now so important? The beginning of the 114th Congress is upon us. As a result of the November elections, Republicans now control both the Senate and House, and there is a new determination to get things done. New congressional members are now learning what they need to know about the issues and concerns.......
FHI360 Conference Center
April 23rd, 2015
insideARM.com and the iA Institute host the third annual Larger Market Participant Summit.
This exclusive event caters to the unique interests of the larger firms in the ARM industry, with unparalleled peer networking, best practice discussion, panels focused on the latest issues... and no exhibit hall.
For senior executives only,.......
Four Seasons Hotel
Las Vegas, NV
May 6th-8th, 2015
This content rich educational conference gives the techniques, strategies and resources for maximizing collection and recovery outcomes. Our goal is to enrich the intensity of the conference for the exhibitor, attendee and sponsor alike with an unparalleled learning experience. This is an exclusive gathering of industry professionals like none.......