The Plight of the Small Collection Agency

I got a call the other day from an agency owner whom I have known for close to 10 years. His agency is small – about 10 employees – and is struggling to keep its operations going, which prompted me to write. A lot of what we read about tends to focus on larger, international collection agencies and not on what is happening to the core population of the industry: the small agency.

Size of the Market

Smaller collection agencies with 15-20 employees or fewer represent 95 percent of the debt collection industry and a majority of the ACA membership base. These agencies are facing real challenges today. Most of these agencies are local or regionally-focused with an owner who is responsible for all the sales and most of the operations. These agencies are in cities across the country and are typically working placements from clients like local hospitals, doctor/physician groups, or debt buyers that are purchasing accounts in their state.

Economic Recovery, Really!

In the case of the agency owner who called me, his first comment was, “Where is the economic recovery everyone in the country is talking about?” This particular owner was based in Michigan, where in his county alone, the unemployment rate was still in the double digits. He was collecting on accounts that were in his county or surrounding ones. Most of his debtor pool was still receiving extended unemployment benefits which, when they eventually come to an end later in the year, could further worsen the economic conditions in his county.

Limited Budget and Capital Resources to Grow

Many small agencies like the one I described don’t have the budget or the resources to invest in technology to score and segment accounts, or develop sales/marketing channels outside of their local market to generate new business. For a small agency to grow into other asset classes or bring on a large “blue chip” credit card issuer, they must be able to demonstrate that they have vertical collection expertise, certifications such as SAS70, PPMS and ISO, and capacity to take on volume (beyond the first placement drop). Small agencies also face the potential for additional drain on their resources due to the increase of FDCPA-related lawsuits – which don’t tend to go away quickly.

These requirements and capital resource needs create the ongoing dilemma; small agencies have limited access to bank financing – or better said, “non-existent” access – which inevitably means that the owners must personally fund these “pay to play” requirements and growth initiatives.

Options

Many agencies across the country are faced with some hard decisions – stay as-is, grow within the owner’s means, merge with another agency that has more capital resources, or sell out. Each direction carries its potential risks and possible growth opportunities.

I would welcome the opportunity to hear from you and understand the challenges you are facing, and what you are doing to combat them, feel free to contact me directly; my contact information is below.

On May 17th, Michael spoke at the Mid-Atlantic Collector’s Association meeting, where he delved more deeply into challenges smaller agencies face in today’s market and how to combat them. If you would like a copy of the presentation, please download the PDF here.

Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email. You can also read his blogs, follow him on Twitter, or network with Michael from his social media page on insideARM.com.