Mike?s Take: How are economic times affecting your ARM business?

You can’t pick up a newspaper these days without reading about the problems we’re experiencing in the U.S. economy. The ongoing effects of the sub-prime mortgage crisis, decreasing home sales and prices, the credit crunch, and a rising unemployment rate are all taking their toll on the economy in general and thus on credit and collections.

Even though by definition we are not officially in a recession, the reality is that many consumers have been behaving as if we were. The U.S. Labor Department this morning reported the unemployment rate for March rose to 5.1%, the highest level since September. 

The raw numbers only paint part of the picture. An increasing number of people want full-time work but are only able to find part-time jobs. There is also an increase in the number of people who have stopped looking for work altogether because they have become discouraged by the weak market.

If a growing percentage of people are not working, or are only working part time, they will not be able to pay all of their bills on time and past due accounts receivable are piling up.  At this stage, we are seeing that a majority of credit grantors are not yet changing their recovery strategies – taking a wait-and-see approach rather than implementing any abrupt changes. After all, this is not the first time that the US economy has moved toward recession.

As economic conditions are worsening, some credit grantors are starting to place or sell off more accounts, sometimes earlier in their receivable lifecycle, recognizing that as companies they are simply not equipped to manage collection efforts the way third-party experts in ARM can. Some ARM companies are already feeling the effects through increased placement volumes, larger portfolios for sale, and noticeably lower purchase prices.

We recognize this is only part of the story.  In a down economy, account volumes tend to increase but recovery rates may go down.  This depends in large part on the age of the receivable placed, the type of credit, the geographic location of the debtor and the sophistication of the collector.

One thing is certain.  The impact is different from credit grantor to credit grantor, collection agency to collection agency and debt buyer to debt buyer. What affect is the economy having on your ARM business?  Do tell.  We all want to hear from all of you.  (If you don’t want to respond to this blog I understand.  Just contact me directly at 301-907-0840).