Many businesses are choosing to sell their non-performing accounts to turn problematic accounts into an injection of cash.
Is selling your non-performing accounts right for you?
Step 1:
The first step is figure out what these delinquent accounts are costing your business. Assess the amount of time and resources you are currently investing in managing and pursuing these accounts. A “back of an envelope” calculation will give you a baseline of your costs.
Step 2:
Next, you need to know how much those resources are recovering. Many companies don’t run these numbers to determine their net recovery rate. To determine how best to handle your non-performing accounts, calculate your gross recoveries less the overhead spent on operating your own collection efforts. If you use external collection agencies, determine the gross recoveries they collect less the agency’s fees and your costs of managing the agencies.
To receive the best determination of the value of your debt, you need to provide key information. Identify the number of accounts you want to sell and the delinquency age of those debts. What were the previous efforts to collect on these accounts and are there any geographical or industry-specific account information that would help? The more detailed information available, the better able a debt buyer is to determine the true value of your accounts.
Key Questions to ask the Debt Buyer
- Do they have the necessary financial resources in place to support their bid?
- What deals have they done – is there a consistent history of honoring bids and executing committed purchases?
- Do they have policies and procedures on their collection practices and customer information security?
- What kind of track record do they have in protecting a client’s brand?
- What kind of post-sale support will they require? Can they ensure there is centralized coordination of all interaction?
- Can they provide references and testimonials?
- Do they hold these receivables, or try to re-sell to a third party?
What to Look for in a Debt Buying Partner
- Do they have sufficient liquidity and the financial position to be a reliable partner that’s always available whenever you have a need for solutions?
- Do they have the necessary experience and flexibility needed to customize solutions according to your needs?
- Will they be able to consistently honor committed purchases and service the customers in a manner that is compliant with regulations and protects my reputation post-transaction?
- Do they have an adequate level of service standards as well as robust policies and procedures in place?
- Do they have solid analytical capabilities to present optimized and sustainable pricing?
- Are they committed to servicing customers, as opposed to simply making an arbitrage?
- Are they led by recognized industry leaders that know what it takes to continue the relationship journey of your customer or are they a new upstart looking to feed their internal team causing a risk for your customers and brand?
When considering selling non-performing accounts, there are several questions to answer. You need to know what these hard to resolve accounts are costing your business and what your net recovery rate is. If your collection process is a net loss, then you need to gather all relevant information and find a buyer that provides the best service for your company.
The Wrap
Managing your receivables is an important part of business, just like other assets. Receivables should be managed properly, and it can sometimes be a difficult task to manage internally.
Outsourcing your debt recovery can offer some smart and timely alternatives. Canaccede Financial Group is the largest multi-asset acquirer in Canada. we provide both debt servicing and purchasing solutions. Our expert valuation team can work with you to size the debt recovery potential for your organization. If you, or someone on your team, would like to find out more, please contact us at partnerships@canaccede.com .
To find out more about CFG and how we can help, click here.