August 2008 Issue
A primary goal of Collections & Credit Risk's (CCR) annual Industry Rankings is to spot trends in the market based on information participants provide in the surveys, including gross collections, hiring, productivity, placements and technology spending. Agencies and debt purchasers predict a healthy increase in key metrics this year.
Identical to last year's rankings, NCO Group Inc. was the No. 1 collection agency with $1.2 billion in 2007 sales and more than 7,200 collectors, Sherman Financial was the top debt buyer with annual revenues of $1.5 billion and Weltman, Weinberg & Reis Co. L.P.A. as the top collection law firm with $78 million in revenues last year.
A major change for the top accounts receivable management (ARM) firms over the past year or so were the acquisitions of Outsourcing Solutions Inc. by Horsham, Pa.-based NCO Group Inc., which closed March 1, 2008, and Omnium Worldwide Inc. by Omaha-based West Corp., completed May 7, 2007. These two buyouts eliminated OSI and Omnium from the Agency Rankings this year.
ARM companies in CCR's 2008 Rankings saw their combined revenues – which approached $1.99 billion – rise 20.0% in 2007 compared with $1.65 billion in 2006. Of the 21 ranked agencies that forecast their 2008 revenues, they expect sales to rise approximately 16.9% over 2007.
Nineteen ranked agencies that provided data worked debt with a combined face value of more than $60.9 billion during 2007, a sharp 48.7% increase from $41.0 billion in 2006. The face value of debt worked by 18 ranked agencies in 2006 represented a 20.5% increase from $36.1 billion the same group worked in 2005.
Gross collections by 21 ranked agencies that reported them saw this metric increase 17.4% last year to $8.73 billion from $7.44 billion in 2006. Of the 17 agencies that forecast their 2008 gross collections, they predict a 19.9% increase over 2007.
"There's no question the main reason for the increase is the economy," says Ted Smith, vice president of programs and IACC executive director at ACA International. "Placements are up but the big question for 2008 is liquidation and collectability. We're all waiting to see how accounts liquidate with consumers pinched, jobs lost and grocery and fuel costs rising. Weather is also a concern with the flooding in the Midwest. Overall, the industry must be smarter on spending time with accounts that are likely to liquidate rather than wasting time on accounts that will not."
Last year's combined number of full-time equivalent collectors for 22 ranked agencies that provided employment data fell 6.7% to 24,840 employees from their 2006 staffing level of 26,616 collectors. Of 17 ranked agencies that also estimated their 2008 collection staff levels, they will see a 10.0% increase in collector headcount this year.
Each agent among the surveyed agencies in 2006 collected an average $440,336 over the course of the year. Productivity increased by 8.4% last year, as average collections per agent reached $477,465. Of the 14 ranked agencies that projected dollar collections per agent for 2008, they estimate their agents will recover an average of $509,895 each this year, a 3.9% increase over per-agent dollars collected at the same firms last year. In 2007, only one ranked agency's collectors were bringing in more than $1 million each.
Types of Debt Worked
The greatest concentrated asset class in terms of debt worked by agencies are credit card accounts. The 16 ranked agencies that provided data on their delinquent card collection work said it averages 47.25% of their business.
Of the agencies that collect medical debt and provided data, an average of 33.3% of their business consists of collecting on medical bills. Seven agencies indicated they collect on insurance claims.
The nine agencies that provided data for collecting on unsecured financial (non-card) accounts said this asset represented 12.4% of their business. For those reporting they collect telecom, wireless and Internet debt, it was 9.2% of their business last year.
Agencies that collect past-due utility bills said it represented 5.9% of their business in 2007. Eight agencies that detailed their student loan work said it averaged 4.9% of their business while seven agencies that provided data on government debt collections said this class represented 4.1% of their total business last year.
Agencies often find themselves serving certain niches along with their major client business. One firm surveyed collects on direct marketing accounts; another specializes in petroleum and transportation; a third collects on manufacturing credit granted to consumers; and several said they also work commercial accounts.
Debt Buyer Metrics
Fifteen ranked debt buyers reported combined 2007 revenues of $3.22 billion. Eight ranked companies that provided projections for 2008 expect their combined revenues to top $2.17 billion this year, a 20.3% increase over their combined 2007 revenues of approximately $1.80 billion.
"We are finding that prices are moving down across the board. While they may not return to the levels of five or six years ago, it seems clear that they are on a downward trend for now," says Gary Wood, president of debt buyer Collins Financial Services in Austin, Texas. "People have only so much disposable income and when the costs of necessities such as gasoline and food increase as much as they have, it absorbs money that would have been used to pay debts. When you combine that with the drying up of home refinancing as a source of liquidity, it sends a clear signal that liquidation rates will suffer."
The face value of debt purchased by 13 ranked buyers during 2007 topped $41.9 billion, a 32.2% increase from nearly $31.7 billion in purchases made during 2006.
Visa, Mastercard and Discover card accounts, plus private label credit card accounts, continue to make up 60% to 90% of portfolios acquired by debt buyers completing the survey. The ranked companies are also purchasing auto deficiencies; telecom/utilities/gas accounts; installment loans and home equity lines of credit; and more exotic assets such as health club membership dues.
Many are also focused on unsecured personal loans, judgments and bankruptcies, student loans and medical/health care debt. Some of the largest companies purchase and work or resell 10 different asset classes.
Ranked debt purchasers hired 25.7% more full-time collectors during 2007, compared with 2006, but those buyers that offered projections for 2008 indicate they expect to cut back collector headcount by 14.5% this year.
Spending last year by 17 ranked agencies, totaling approximately $24.0 million, increased 4.6% from $22.9 million 2006 and agencies estimate they'll spend 3.5% more money to upgrade various systems during 2008, compared with last year.
Spending by portfolio purchasers on technology increased 30.2% between 2006 and 2007, and ranked debt buyers that offered projections forecast they will spend $21.0 million this year, a 25.7% increase over last year's $16.7 million.
Based on survey responses, CCR has found that agencies are buying and using Artiva and FACS by Ontario Systems, CUBS from Columbia Ultimate, Latitude, Platinum, CR Titanium, Collect!, BFrame, Managed Med, QonTango from Cybersoft, Collection Resource System, Intellitech, The Recovery Score, Collection Prioritization Engine, Sure Placement and Accurint from vendors such as Experian, TransUnion, LexisNexis and others; and Aspect and Dial Connection for contact center technology.
Many agencies have developed their systems in-house, or they have taken off-the-shelf scoring products, for example, and customized them.
Like the agencies, many debt buyers use collection platforms they developed in-house but they also use such programs as Artiva by Ontario Systems, Tiger by CDS, Latitude, commercial legal software and CollectionMaster, according to results of the rankings survey.
The vast majority of debt buyers report they have developed custom software to evaluate portfolios, but they also use programs like CollectionAdvantage from Experian and those developed by Acxiom, according to survey responses.
CCR contacted more than 450 agencies, debt purchasers and collection law firms numerous times between early April through mid-June and received 49 complete responses that included revenue figures. CCR