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.
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