The Future of Receivables Management

In August, Kaulkin Ginsberg will release the 7th Edition of The Kaulkin Report, subtitled “The Future of Receivables Management.” This biennial publication has long been regarded as the authoritative review of the ARM industry.

It is no crystal ball, but it takes positions on the forthcoming direction of the industry and should help owners, managers, and investors plan for the future. An executive summary of the publication will be available free of charge on insideARM.com, and the full publication will be available for purchase in the insideARM.com bookstore.

This publication is more ambitious and potentially more controversial than its predecessors. Prior editions of this publication offered descriptions of the industry, reviewed recent events, and described notable trends to date. This publication goes much further. As its subtitle reflects, our goal here is not only to describe the industry as it currently exists: we make some informed predictions about how the industry will evolve in the coming years.

These predictions are based on a review of eight constituencies that comprise the ARM industry: consumers, creditors, regulators, contingency collectors, debt buyers, first-party collectors, collection law firms, and buyers and sellers of companies. These constituencies will become more diverse in coming years as consumer credit is further extended and business models become more fluid. In many cases, these developments will be well rewarded. Receivables management, at least for certain credit grantors and certain service providers, will remain a highly profitable endeavor.

At the same time, creditors and service providers are facing real challenges, and these should increase in the coming years. Slower economic growth, data security requirements, consumer litigation, less collectible paper, pricing pressure, the slowing housing market, and other factors will increase the risk of doing business in the ARM industry over the next five years. The most successful ARM companies will develop business systems and processes that best mitigate these risks.

For example, the mortgage delinquency rate on one-to-four-unit residential properties was 4.84 percent of all loans outstanding at the end of the first quarter of 2007, up from 4.41 percent a year earlier, according to the Mortgage Bankers Association (MBA). All subprime mortgage delinquencies stood at 13.77 percent, more than two and a half times the rate increase for all loans in the same period. In June 2007, the MBA indicated that the number of U.S. mortgages going into foreclosure in the first quarter of 2007 was the highest percentage in almost 30 years. As subprime mortgage delinquencies and foreclosures increase, borrowers have less ability to leverage home equity to repay more expensive debts, and recoveries in all sectors of the ARM industry will be affected.

Given these risks and rewards, success in the ARM industry will be based largely on how companies choose their competitive niches. As years progress, the effects of these choices will become apparent to competitors, clients, consumers, and regulators alike.

We look forward to sharing these forecasts with you, and, of course, working with you to create the real future of receivables management.

Paul provides advisory services to select clients, including creditors, receivables management companies, service providers, investors, and prospective acquirers for Kaulkin Ginsberg. Contact Paul by email.