History of the U.S. Accounts Receivable Management Industry

The accounts receivable management industry has gone through significant transformations since its beginning. Below is a quick look at how the industry has evolved.

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Interesting Facts

The amount of outstanding consumer credit multiplied by a factor of almost seven during the 1950s and 1960s, from $19 billion at the beginning of 1950 to $127 billion at the end of 1969. Demand for debt collection increased proportionally.
The percentage of U.S. families using revolving consumer credit increased rapidly, from 16% in 1977 to 37% in 1995.
The ARM industry revenues have grown by almost 275% over the last decade, as total revenues have increased from an estimated $5.5 billion in 1996 to an estimated $15 billion in 2004.

Quick History of Consumer Credit

Early history/Agricultural age
- U.S economy largely agricultural and barter system was part of farm life and gave rise to earliest forms of debt collection
Industrial age
- Consumer debt became more popular.
- Credit was needed to purchase automobiles and payments were made in installment plans.
1930s
- Retailers develop charge accounts where consumer can pay over extended periods for a fee.
1951
- Franklin National Bank released the first charge card.
1959 and 1966
- The predecessors of Visa and MasterCard came into existence respectively.
- Allowed credit cards to be used, regardless of the customer’s location, so long as purchase transactions could be settled by participating banks.
1970’s
- Demand for debt collection increased dramatically.

Quick history of debt collection

Early history
- 1920s and 1930s- small collection agencies proliferated throughout US
1977
- Fair Debt Collection Practices Act (FDCPA) passed, cited “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.” Government regulation would reshape the industry for the better.

The industry evolves

The FDCPA forced collection agencies to transform the ways in which they did business and the processes they took to collect debt.
Collection agencies began to evaluate and improve business processes supporting these collection efforts. Advances in supervision on the collection floor, telephone systems, and early collection technologies allowed collection agency managers to improve financial and operational results by managing their companies as systems, rather than as groups of collection agents.
A different way of doing business was developing in the ARM industry, called debt buying (debt buying began in earnest in the 1980’s in the U.S.).

The modern accounts receivable management industry

NCO Group filed for an Initial Public Offering in September 1996 (they are now private). This public offering and the receptivity shown by Wall Street in subsequent years for ARM stocks allowed greater visibility and set greater expectations for companies competing in the ARM industry.
Collection technologies have grown to be more sophisticated and popular throughout the last several years, allowing collections to spend more time speaking with debtors. More recently, developments in portfolio scoring and related forecasting models brought heightened sophistication to the financial management of collection operations. With technology platforms in place, companies have turned to acquisition as a growth strategy.

Diverse business models in ARM industry

The industry now sees revenues generated from contingency collections, debt buying, first party collections, and collection law.
Still, the mainstay of the ARM industry has been and continues to be contingency collections (a third party service provided by collection agencies to credit grantors that have delinquent or charged off receivables).