Settlements In Full: Debt Collection and the U.S. Economic Recovery
Recovery executives and debt collection agencies throughout the country are facing a glut of charged-off accounts as the economy emerges from the recession -- and unemployment projections would suggest that collections and recoveries will continue to remain challenging for some time. To maximize recoveries, these executives have begun to take a new look at the policy of accepting Settlements In Full (SIF). These debt recovery strategies comprise one of the most important and least-discussed issues for the industry in 2010. |
As a leading advisor to credit issuers and their service providers in the field of receivables management, Kaulkin Ginsberg maintains an in-depth, practical knowledge of successful debt recovery models (more about our credit issuer services). This executive brief, "Settlements in Full: Debt Collection and the U.S. Economic Recovery," examines Settlements In Full (SIFs) policies, what makes them effective, and what they mean to the economic recovery as a whole.
Settlement rates for debt charged off
Based on aggregate research, Kaulkin Ginsberg has determined that settlement rates can reach 50 percent pre-chargeoff, declining over the life of the receivable to 20 percent or less when managed by a tertiary contingency agency. Download our debt recovery strategies report and learn the current market rates for settlements in full (SIFs), and the factors behind the declining levels during the recession.
How debt recovery models utilize Settlements In Full (SIF)
Like other recovery strategies, SIFs are approached by credit issuers based on the time value of money. For example, when the net present value (NPV) of a settlement at chargeoff exceeds the present value of cash flows resulting from more of a long-term payment plan negotiated by a collection agency, then with all other things being equal, credit issuers should choose to settle the account with the borrower.
Download our debt recovery strategies report and discover the factors that are incorporated into the financial models of credit issuing companies to determine whether settlements should take place, and at what rates.
SIF policies impact short term and long term debt recovery strategies
SIF policies, adopted by credit issuers and implemented by their service providers, can improve short-term financial performance for some of these companies, but potentially at the expense of others. These risks must be weighed carefully when devising or implementing a SIF program. Download our debt recovery strategies report and learn the criteria used for developing an effective SIF program.
In the long run, effective SIF policies have potential to contribute uniquely to the U.S. economy as it continues to emerge from recession, while ineffective SIF policies can unintentionally stall economic growth.
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