Author: Jefferson Capital Systems

Many companies that have aging receivables are missing out on opportunities for growth. Businesses are going to be limited or completely unable to invest in essential equipment, develop new items, or expand sales when their assets are locked up in A/R that is generating poor returns. Past-due accounts can potentially add up and result in serious cash flow issues.

Canaccede Financial Group reviews how businesses can improve the efficiency of their receivable recovery process. Although there is no one-size-fits-all approach for maximizing debt collection, there are several pointers that can help.

Understanding Receivables

To optimize accounts receivable management, business owners must clearly establish what is outstanding and create a solid collection plan for recovering these debts. Having a clear view into aging receivables enables companies to focus their collection efforts and improve procedures by tightening operational standards, improving automation, or establishing meaningful KPIs.

Determine key performance indicators (KPIs) for internal employees, such as the number of past-due accounts, collection rates and amounts, and accounts assigned to outside collectors. Make expectations explicit, with concrete consequences if they are not reached.

Use Champion vs. Challenger Comparisons

To improve recovery performance from all parties involved in the effort, companies should examine their internal team’s tactics against external agency partners. Determine what’s working, and what is simply going through the motions. The more a company can tighten up its own A/R team policies, the less debt winds up aging and requiring external help.

Consider ROI

When it comes to collecting receivables, one important metric to consider is if the ROI (return on investment) lines up with the set budget. Consider asking the following questions to determine if a change is needed in collection efforts:

• Is it more cost effective to outsource all, or a portion of the portfolio?
• Which “buckets” of the aging seem to perform better in-house, vs. with a partner firm?
• Is it costing the business more money to recover these receivables?

Customer Support

All this analysis and comparison must take into account the influence on consumers. Are the accounts being called by both internal and external teams? Is the enforced payment plan too punitive?
Collection tactics that harm clients may also harm the business’ reputation. Be sure that the collection team is following fair debt collection practices.

Selling vs. Servicing

Debt collection is not just a business practice, but a skill. When selling debt to a receivables management company, it is sold at a lower cost, where the buyer takes on the obligation and risk of debt collection. This solution provides firms with an instant upfront payment as well as freeing up internal operations by managing debt recovery activities.

In Conclusion

By implementing effective collection management strategies, businesses can navigate the complexities of debt recovery with confidence and success. By taking a proactive approach, organizations can optimize internal processes, utilizing available resources for profit-making ventures.

Organizations can enhance their cash flow, reduce losses, and maintain strong customer relationships by implementing these changes. With the right collection management mindset, a business can transform its challenges into opportunities, creating more lucrative returns.

Those new to the world of selling their debt to third party firms can take solace in knowing that they are not alone. A growing number of companies large and small are finding that selling aging A/R just makes good business sense, and for numerous reasons that include using internal resources more efficiently, and rapidly refilling cash reserves.

In the following article, Canaccede Financial Group reviews step-by-step, strategic ways to navigate the intricacies of debt sales. Whether small business owners or industry titans, businesses should prepare to explore the different options for selling off non-performing accounts, and what that could potentially mean for cash flow.

Introducing: Debt Buyers

A debt buyer is a company that buys aging receivables from creditors at the fair market value of the outstanding balance of the debt. The buyer will then collect the debt on its own, through collection agencies, or litigation firms.

• In order to recoup on a creditor’s outstanding debt, a debt buyer purchases it at the current market value of the sum owed.
• Creditors sell their debts for a variety of reasons, including capital recovery, liquidity needs, loss provision reduction, resource reallocation, and tax write-offs.

Debt buyers in Canada generally acquire overdue debt from credit cards, installment loans, auto loans, mortgages, retail accounts, telecom, and utility bills.

How Debt Buyers Create Value in Business

If a lender, such as a financial institution, is unable to collect payment on outstanding debts in accordance with the conditions of its financing, they will seek to recoup part of their losses. There are situations when a lender sees little chance of recovering the monies within the timeline specified when the loan or credit was obtained.

Rather than waiting for the debtor to pay off the overdue obligation in full, the lender has the alternative of continuing to work the debt internally or contacting a debt buyer – receiving an immediate return.

In general, selling debt makes sense if the lender has one or more of the following necessities:

• To increase liquidity (through monetary injection)
• Have a constant and predictable cash flow if selling on a monthly forward flow basis (no need to worry – the buyer assumes the forward risk).
• Create a profit and loss lift.
• Redirect resources to core activities or other areas with higher returns.

After acquiring possession of the overdue accounts, the debt buyer will utilize a variety of techniques to reclaim as much of the debt as possible. These attempts may include tactics such as negotiating a fresh set of repayment arrangements with the debtor.

Main Goals

The debt buyer’s overall strategy is to leverage the value of the delinquent loan to obtain a return on their investment. The debt buyer frequently has more freedom in their techniques of recovery than the original lender. This is because they have a long-term vision of rehabilitation for the client, creating additional recoveries that can translate into profit for the organization.

So, when a business finds itself burdened with delinquent business debts, don’t overlook the power of debt buying. Embrace this transformative option and witness firsthand how it can reshape a company’s financial landscape, propelling profits and success.

Surprisingly, selling a business’s distressed and insolvent accounts separately may result in less total money being recovered. Taking these asset classes to market as a bundle instead optimizes the return on these debts for the seller.

Because many organizations manage their charged-off and insolvent assets through separate internal or external teams, the collective potential of these products is frequently overlooked. In the following article, Canaccede Financial Group reviews that there is a tremendous opportunity to increase selling value and operating savings by combining their worth.

Combining Asset Categories

Some receivable management firms are skilled at acquiring and servicing both insolvent and charged-off outstanding debt within a single transaction. Bundling allows the seller to capitalize on economies of scale. Put simply, the larger the multi-asset class transaction, the better the buyer’s capacity to blend margins and maximize the total price for the seller.

A buyer possessing expertise in diverse asset classes can leverage their resources to ensure optimal servicing of said assets, thereby passing on the benefits of an efficient cost structure to the seller through a bundled sale.

Single Point of Contact

Finding a debt buyer for a business’s insolvencies and distressed accounts enables them to have a single point of contact, facilitating a seamless transition of assets from charged-off to insolvent status.

This collaborative approach often leads to enhanced value generation for the company’s bottom line. Moreover, a debt buyer can engage with the seller to establish regular cash injections across various lines of business by arranging a forward-flow agreement on charged-off and insolvent debts.

Contracting with a single buyer for numerous asset classes cuts down on time-consuming discussions and collection practices for each. Selling distressed and insolvent accounts to different purchasers involves dealing with several systems and contact points, which takes time and resources.

Having all their old files in one place provides a strategic advantage for the seller, streamlining their internal operations.

Increased Scope of Service

In addition to purchasing charged-off debt, a buyer who also acquires and manages insolvencies would also be able to provide entire insolvency processing services that are completely controlled by their organization.

A qualified servicer would analyze creditor packages and accompanying documents, prepare and file proofs of claim, handle all correspondence, documentation, and dividend follow-up in this type of sale structure.

Removing these duties from a seller’s internal team and obtaining a greater price for all assets enables a seller to redeploy their personnel resources to considerably higher-value activities.

Unlocking the potential of delinquent business assets presents a tremendous opportunity for those seeking unique and efficient ways to drive value. By viewing these assets collectively, businesses can tap into an immediate cash-infusion benefits, paving the way for enhanced operational efficiency.

This strategic approach is not just a one-time solution, but a recurring opportunity that can be executed month after month, leading to predictable and sustainable financial liquidity.

Over time, businesses will observe the power of this approach, as it generates significant value and propels their assets towards long-term success. Don’t underestimate the potential of delinquent assets; seize this opportunity and experience the remarkable impact it can have within the financial landscape.

Many companies are deciding to sell non-performing accounts in order to convert aging balances into a capital infusion.

However, is it always the right move for a business to sell these debts?

In the following article, Canaccede Financial Group reviews that the first step of the process is to determine how much these overdue accounts are costing the company. Consider how much time and effort the team is devoting to managing and chasing these accounts. A “back of the envelope” calculation will provide business owners with an estimate of these total costs.

Next, the company will want to determine how many of these accounts are eventually being recovered, and what percentage of the balance is actually being paid. Many businesses make the mistake of not performing these calculations and accounting for settlements, discounts, and other adjustments when trying to establish their recovery rate.

Calculate the gross recoveries, less the costs spent on conducting collection operations to determine how to effectively treat these non-performing accounts. Additionally, analyze the total recoveries the agency collects, minus their fees and the costs of managing the accounts if utilizing external collection agencies.

Valuing the Accounts

Businesses must submit all essential data in order to receive the most precise assessment of the value of the accounts to be placed. Determinants will include the aging of balances, outstanding amounts, and whether any portion of the debt is contested by a customer or end-user.

What prior attempts were made to recover these accounts, and are there any regional or industry-specific account details that may be useful? The more precise the information, the better a debt buyer can assign a genuine value of the underperforming accounts.

Important Questions to Ask the Debt Buyer

• Do they have the required financial means to back their bid?
• What transactions have they completed – do they have a consistent track record of honoring bids and carrying out agreed purchases?
• Do they have rules and processes in place regarding their collecting activities and the protection of consumer information?
• What is their track record in defending a client’s brand?
• What type of after-sales service will they require? Can they ensure that all interactions are coordinated centrally?
• Are references and testimonials available?
• Do they keep these receivables or sell them to a third party?

What to Look for in a Debt Buyer

• Do they have enough liquidity and a strong enough financial position to be a trustworthy partner who provides quality service and communications?
• Do they have the necessary expertise and versatility to tailor solutions to specific requirements?
• Will they be able to regularly honor pledged purchases and service clients in a way that is compliant with regulations and maintains the business’s reputation after the transaction?
• Do they have acceptable service standards in place, as well as strict regulations and procedures?
• Do they have the analytical abilities to provide optimal and long-term pricing?
• Are they devoted to serving clients rather than merely earning a profit?

What to Consider

Various considerations come into play when selling non-performing accounts. Business owners must understand the cost these difficult-to-resolve accounts impose on the company and assess the net recovery rate.

If the collection procedure is resulting in financial losses, gathering all necessary information becomes imperative. Lastly, it is crucial to select a buyer who can provide optimal services for the business.
By understanding the costs involved, assessing the net recovery rate, and gathering essential information, business owners can make informed decisions.

Furthermore, selecting a buyer that can continually collect on future accounts becomes paramount to ensure a successful outcome in the future. Taking these considerations into account will help business owners navigate the process of selling non-performing accounts with confidence and strategic foresight.

Jefferson Capital Systems is an analytically driven purchaser and servicer of consumer charged-off and bankruptcy accounts, a sector that plays a vital role in the overall functioning of the financial system. Jefferson Capital Systems was established with core values of Integrity, Respect, Fairness, Compliance, and Communication. This article aims to shed light on Jefferson Capital Systems and explore the positive benefits of the debt buying industry on the financial ecosystem.

Understanding Jefferson Capital Systems

Jefferson Capital Systems reviews their partnerships with creditors to purchase delinquent accounts, primarily from financial institutions, telecommunications companies, and healthcare providers. Once acquired, Jefferson Capital Systems uses its expertise to collect the outstanding debts while ensuring fair and respectful treatment of consumers.

Benefits of the Debt Buying Industry

1. Expands the availability of credit: The United States’ economy is heavily reliant on the extension of consumer credit. Creditors calculate into the price of goods and services the anticipated losses from nonperforming receivables. The secondary market provides a mechanism for reducing those losses, which is factored into the business’ lending calculations. If a business is unable to recover its receivables, the cost of their goods and services will increase and the business may be forced to restrict the extension of credit to only low risk consumers.
2. Debt Forgiveness and Rehabilitation Programs: Debt buying companies, including Jefferson Capital Systems, often have greater flexibility than original creditors to work with consumers to establish debt forgiveness and rehabilitation programs, since the debt buyer purchased the account for less than the full balance. By resolving debts at less than the full amount due, debt settlement opportunities provide an opportunity for individuals to resolve their debts in a structured and manageable manner. By working with debtors to create affordable repayment plans, debt buyers contribute to the financial well-being of consumers, enabling them to regain control of their finances and improve their creditworthiness over time.
3. Liquidity Injection: The money creditors receive from debt buyers on the secondary market allows those lenders to use fresh capital to issue new loans. Creditors receive immediate payment for their distressed accounts, allowing them to deploy funds in other areas of their business or extend new credit to consumers. Without the secondary market, lenders would have less access to capital which would restrict their ability to loan to new borrowers. This infusion of liquidity stimulates economic activity and fosters growth.
4. Reduction of Non-Performing Assets: Non-performing assets (NPAs) can significantly impede the growth and stability of financial institutions. The debt buying industry aids in reducing NPAs by providing an avenue for creditors to offload their non-performing accounts. Debt collection is usually not considered a main focus of an originating creditor’s business model. By selling its accounts receivables, an originating creditor can focus its energies and capital on what it does best. This enhances the overall health and stability of the financial system.
5. Satisfying Compliance Obligations: Creditors must partner with reputable debt purchasers to satisfy reputational concerns and regulatory requirements. By partnering with a reputable partner, the original creditor is able to shift some compliance oversight to the debt buyer since the original creditor is no longer attempting to collect on the delinquent account. In order to identify reputable debt buyers, RMAi, which is the debt buying industry’s trade group, maintains a certification program that ensures a debt buyer is legitimate and follows ethical practices. By working with a certified business, a debt seller can avoid working with a fly-by-night operation that may put the debt seller’s reputation at risk. Jefferson Capital is a RMAi certified debt buyer with a 20-year track record of protecting its partners’ reputations, while following best practices for compliance with all local, state, and federal regulations.

Conclusion

Jefferson Capital Systems, as a leading debt buying company, demonstrates the benefits of the debt buying industry in enhancing the financial system. From debt resolution and recovery to reducing non-performing assets and injecting liquidity, the debt buying industry plays a vital role in maintaining the stability and growth of the financial ecosystem. Ethical and certified debt buyers like Jefferson Capital Systems foster positive outcomes for both creditors and consumers. As the industry continues to evolve, debt buying will remain an essential component of a healthy financial system.

Jefferson Capital Systems was founded in 2002 based on the bedrock principles of listening, identifying solutions, and “doing the right thing.” It’s why last year alone, it was able to help hundreds of thousands of account holders find workable solutions to resolve their accounts and move forward with their lives. Over the past 20-years, Jefferson Capital has become one of one of the largest debt buyers in the United States, while undergoing significant growth and transformation.

Jefferson Capital is headquartered in St. Cloud, Minnesota with additional offices located in Minneapolis, Minnesota and Denver, Colorado (United States); Basingstoke, England; Woking, England and Glasgow, Scotland (United Kingdom); as well as London, Ontario and Toronto, Ontario (Canada). As the company has grown, so has its capabilities. Jefferson Capital Systems growth has been fueled by The JCap Difference: Its Proprietary Solutions, Data Science Expertise, and Best in Class Compliance Program.

Jefferson Capital Systems has embraced innovation and adapted to the evolving needs of the account receivables industry. Its trademarked proprietary solutions in cutting-edge technologies have enabled it to assess the value of debt portfolios accurately, and enhanced its debt recovery processes. With the use of advanced modeling approaches, including neural networks and artificial intelligence, Jefferson Capital Systems utilizes predictive modeling techniques applied to multi-year data sets on millions of unique consumers. These models allow Jefferson Capital Systems to make industry-leading decisions about account holder contact ability, optimal legal profitability and placement determinations. Its models are refreshed at least annually to ensure the most recent consumer payment behavior trends are incorporated. These advancements have allowed it to streamline operations, increase efficiency, and deliver better outcomes for all stakeholders.

Jefferson Capital Systems has maintained a principle of compliance first since day one. It operates in the highest ethical manner and in full compliance with all applicable laws and regulations including the Fair Debt Collection Practices Act (FDCPA) and regulations set forth by the Consumer Financial Protection Bureau (CFPB). These regulations aim to protect consumers’ rights and ensure fair and ethical practices in debt collection. By adhering to the applicable laws and regulations, Jefferson Capital Systems helps consumers handle their financial commitments, while protecting their clients’ reputations.

As a debt buyer and collector, Jefferson Capital Systems plays a significant role in the broader financial ecosystem. By purchasing and recovering debt, the company helps original creditors to mitigate losses and maintain liquidity. Additionally, the debt collection process allows consumers to address their outstanding financial obligations and work towards improving their creditworthiness.

As Jefferson Capital Systems reviews the past and looks to the future, they strive to stay ahead of industry trends and anticipate the changing needs of their clients and consumers. With their unwavering commitment to integrity and their innovative spirit, Jefferson Capital Systems is well-positioned to continue as a leader in the account receivables industry.

Jefferson Capital Systems, a prominent player in the account receivables industry, has not only established a strong reputation for its expertise in debt purchasing and recovery but has also made a significant impact through its community outreach efforts in central Minnesota. Recognizing the importance of giving back and supporting local communities, Jefferson Capital Systems has partnered with the United Way to make a positive difference in the lives of the people of central Minnesota and beyond.

One of the key areas where Jefferson Capital Systems reviews their community outreach impact is in financial literacy and education. Jefferson Capital Systems understands that financial knowledge is crucial for individuals to make informed decisions and achieve long-term financial stability. To address this need, employees of the company have organized workshops and seminars in collaboration with local community groups. Jefferson Capital Systems reviews that these financial literacy programs cover a wide range of topics, including budgeting, debt management, and credit building. By providing accessible and practical information, Jefferson Capital Systems empowers community members to take control of their finances and work towards a better future. These workshops have been well-received, with participants appreciating the valuable insights.

Jefferson Capital Systems has also demonstrated its commitment to supporting local charitable organizations and initiatives. Through its partnership with the United Way, the company has contributed resources and financial support to causes that align with the company’s and its employees’ values and goals. Whether it’s providing donations to food banks, sponsoring educational programs for underprivileged youth, or supporting housing initiatives, the company’s contributions make a positive impact on the community.

In addition to financial contributions, Jefferson Capital Systems encourages its employees to participate in volunteer activities. Many Jefferson Capital Systems employees are active volunteers in local Rotary clubs, churches and other civic organizations. By fostering a culture of giving, Jefferson Capital Systems inspires its employees to be actively involved in making a difference in their communities.

Furthermore, Jefferson Capital Systems recognizes the importance of environmental sustainability and has implemented various initiatives to reduce its carbon footprint. The company has embraced energy-efficient practices within its operations and has implemented recycling and waste reduction programs. By promoting environmental responsibility, they aim to contribute to the overall well-being of the community and future generations.

In conclusion, Jefferson Capital Systems goes above and beyond its role in the account receivables industry by actively engaging in community outreach efforts. Through financial literacy programs, support for local nonprofits, employee volunteering, and environmental sustainability initiatives, Jefferson Capital Systems exemplifies its commitment to being a responsible corporate citizen and a valuable partner in the community.

Minnesota based Jefferson Capital Systems, LLC began a long standing partnership with the United Way in 2002 to give back to the community as part of its bedrock principles of listening, identifying solutions, and “doing the right thing.” Jefferson Capital and the United Way have achieved this vision through numerous initiatives.

Not only does Jefferson Capital host events such as cookouts to raise money for United Way, but it also makes corporate donations and incentivizes its employees to give by offering fun rewards and experiences. After donating more than $600,000 over the past 20 years, Jefferson Capital and the United Way plan to continue the partnership well into the future.

Below, Jefferson Capital Systems reviews how its corporate ethos is complimented by maintaining its relationship with the United Way, through giving back to employees and the community.

How United Way Gives Back to Others

The United Way is one of the largest 501(c)3 organizations in the United States. It works alongside nearly two thousand fundraising operations to help those in need. The United Way helps individuals and families in need of housing, healthcare, education, and more. However, this work alone is not what attracted Jefferson Capital’s attention.

What really stood out to Jefferson Capital was the way that the United Way truly listens to people’s needs and then works one-on-one with them to provide effective solutions. According to firm president Mark Zellmann, the United Way’s vision and impact aligns with the manner in which Jefferson aims to provide their own clients with the same high quality of service, always ”doing the right thing” above all else.

To help United Way in their efforts, Jefferson Capital began donating more than 20 years ago. Since then, it has supported United Way’s community outreach by various means, including:

• Inviting representatives of the United Way to attend corporate meetings and present to employees about the value of giving;
• Hosting lunch cookouts where employees can contribute to the United Way;
• Selling raffle tickets for gift baskets, with 100% of the proceeds going to the United Way;
• Rewarding employees who donate to the United Way with treats and special experiences.

Plans for the Future

During the kick-off meeting for the 2023 campaign, a United Way representative provided a presentation on the impact Jefferson Capital’s contributions have made in the central Minnesota region. The presentation showed the on-going needs in the community and how Jefferson Capital’s contributions will help to address those needs.

Not only will Jefferson Capital continue with its typical fundraising campaign, but Jefferson Capital will also begin hosting new events. Having raised roughly $25,000 every year since their partnership began (along with a $20,000 corporate donation for its twentieth anniversary), Jefferson Capital and its employees believe they can strengthen their contributions even further.

Jefferson Capital’s event schedule begins with yet another cookout in June. Managers will cook brats and burgers for employees, who can then donate to the United Way. Jefferson Capital will also host an event for coffee lovers in autumn, followed by a December food drive.

Conclusion

Jefferson Capital and its employees have raised more than half a million dollars to help United Way’s fundraising efforts.

For Jefferson Capital Systems, giving back to the community in which they operate is essential. Contributing to United Way enables Jefferson Capital Systems’ employees to align their financial donations with organizations that support their values, and advances the corporate mission of “doing the right thing.”

For debt buyers, effective performance monitoring is vital when looking to cultivate a successful and compliant team while safeguarding the rights and interests of consumers.

In order for debt buyers to ensure proper development and consumer protection, companies must continuously monitor their teams’ performance. They often do this using various methods to enhance their productivity, compassion, and safety measures.

Jefferson Capital Systems reviews that, like any business, debt-buying firms must monitor, quantify, and evaluate the right metrics to successfully come out on top. Here, businesses are looking to generate tax write-offs, re-deploy their own resources, or recover their investments.

Some of the strategies employed by such agencies are detailed below.

Utilizing Scorecards for Team Development and Morale Boosts

While debt buyers aren’t necessarily collectors, many end up choosing to run collection operations themselves, pushing their business into that category. Thus, they can utilize the scorecard method for accurate performance monitoring.

According to InsideARM, collector scorecards are summaries of a range of statistics in one easy-to-read document. The performance evaluation resource tracks a plethora of actions made by collectors, combining everything into a final score written at the bottom of the scorecard.

The “grade” signifies the work effort while identifying the areas of potential for improvement and success. Thus, agencies know exactly what they need to focus on for the betterment of the team.

Tracking Performance Through Segmentation

Businesses want to boost their return on investments (ROIs) — debt buyers are no different. Therefore, they can track based on the segmentation of loan sets based on their agencies’ specialties.

Some specialize in account types (i.e., high balances or bankruptcies), while others specialize in asset classes (i.e., unsecured consumer loans), while the rest may lean toward a vertical such as auto deficiencies.

Regardless, discovering each agent’s niche and tracking performance based on their specialties is a great way to maximize potential.

Integrating Advanced Technology to Track, Measure, and Improve Success Rates

Specialized collections software is the most effective way for debt buyers to track their metrics and develop their teams as a result.

However, not all available software was created equally. Debt-purchasing firms must practice due diligence when finding the cream of the crop.

Experts suggest that agencies should invest in specialized software that covers the following metrics:

• Product line — The software should cope with retail products (i.e., consumer loans, credit cards, housing, car loans, etc.) with and without collateral, corporate loans, small business loans, factoring, and leasing.
• Time — It should cover all stages of the process, from soft to recovery.
• Location and organization — The system should centralize the firm’s data in one place for more accurate, seamless measuring.

Setting and measuring goals ultimately guarantees the development of a firm’s teams. After all, changes can’t be made without understanding the actual problems with the current processes.

Plus, customer protection disputes will likely arise during the process, bolstering agencies’ abilities to keep their consumers safe from cybersecurity breaches.

By prioritizing performance monitoring and incorporating consumer protection measures, debt buyers can create a culture of accountability and excellence that benefits both their teams and the individuals they serve.

There’s a common temptation in business to hold on to aging receivables with the belief that payment is just one more email or phone-call away. However, that’s not always the case, and the longer those aging receivables stay on the books, the harder they become to recover. One of the obvious benefits of selling non-performing accounts is increased liquidity for the creditor– the funds previously MIA as a result of non-paying customers are now available to fuel other business operations.

But of course, there will be various considerations when making this kind of decision. Jefferson Capital reviews below how to determine if selling receivables makes sense for your business.

What Are Account Receivables?

The first step to knowing whether or not a business is ready to sell account receivables is simply understanding what counts as an account receivable. An account receivable is the result of an extension credit representing the borrower’s promise to repay the creditor for the credit that was extended for the purchase of goods or services. For example, if a bank issues a credit card to a consumer and the consumer incurs $100.00 worth of charges on the credit card account, the $100.00 due on the account is listed as an “account receivable” in the bank’s records. It will remain there until the amount is paid off by the consumer. Essentially, a receivable is a customer’s promise to repay borrowed funds. Account receivables are assets that can be purchased and sold just like any other asset. The ability to buy and sell account receivables creates significant benefits to both the business and consumer.

What is the Account Receivables Secondary Market?

The secondary market for account receivables (also referred to as the “debt buying” industry) provides for the orderly purchase and sale of account receivables. The receivables secondary market is the marketplace where ownership of performing and nonper¬forming account receivables (i.e. the asset) are purchased by companies that were not a party to the original transaction. The selling entity on the secondary market may be the original creditor or a company that purchased the receivable from another debt buying company. When a transaction is completed in the secondary market, the ownership of the receivable and all legal rights associated with that asset are now held by a company not a party to the original transaction.

What are the Benefits of the Account Receivables Secondary Market?

The account receivables secondary market creates significant benefits for both creditors and consumers.

For consumers, the secondary market:

• Allows credit to be widely available -The United States’ economy is heavily reliant on the extension of credit for the purchase of goods and services. Busi¬nesses calculate into the price of goods and services the anticipated losses from nonperforming receivables. The secondary market provides a mechanism for reducing those losses, which is factored into the business’ pricing calculation. If a business is unable to recover its receivables, the cost of their goods and services will increase and the business may be forced to restrict the exten¬sion of credit to only low risk consumers.

• Lower Cost Settlements -Debt buyers who purchase accounts are often willing to negotiate settlements of accounts for less than the original creditor since the debt buyer purchased the account for less than the full balance.

For businesses, the secondary market:

• Facilitates liquidity for lending entities -The money lenders receive from debt buyers on the secondary market allows those lenders to use fresh capital to issue new loans. Without the secondary market, lenders would have less access to capital which would restrict their ability to loan to new borrowers.

• Creates small business jobs – The debt buying and collections industries account for hundreds of thousands of jobs nationwide, the majority of which are with small businesses. Without a viable secondary market, many of the jobs created in the debt buying industry would either not exist or would remain with large lending entities.

• Allows creditors to focus on their core competencies -Debt collection is usually not considered a main focus of an originating creditor’s business model. By selling its accounts receivables, an originating creditor can focus its energies and capital on what it does best.

Ways to Tell if Selling Receivables Makes Sense for a Business

In light of the above referenced benefits of the account receivables secondary market, selling receivables is part of many successful businesses’ standard operating procedure.

Below are three ways to tell if selling receivables makes sense for a business:

1. The Business Has Significant Unpaid Account Receivables –If a business has a large portfolio of account receivables on its books, selling the receivables may make sense for that business. Because of the transaction costs of selling and purchasing receivables, most debt buyers are not interested in purchasing only a few accounts at a time. However, what constitutes a “significant” amount of receivables is dependent on each segment of the secondary market and a debt buyers’ willingness to purchase the accounts.
2. The Business’ Capital Needs – If a business is in need of fresh capital, the selling of receivables for present value is a good alternative to waiting for a long term collections cycle to be completed.
3. Satisfying Compliance Obligations – Creditors must partner with reputable debt purchasers to satisfy reputational concerns and regulatory requirements. As part of those obligations, creditors must vet potential purchasers of the accounts to ensure the debt buyer complies with all collection laws and obligations. The creditor must also provide sufficient documentation of the account to the debt buyer to fulfill the debt buyer’s obligation to establish the amount owed and its ownership of the account.

In Conclusion

The receivables secondary market provides direct and tangible benefits to many successful businesses. It also benefits consumers by providing liquidity to lenders who are able to issue new loans. Businesses holding a large volume of account receivables on their books should investigate the value-add proposition of partnering with a reputable debt purchaser.