Estimating the Costs of the Collections Process for a Portfolio Acquisition - Decisimo -

When considering the costs of the collections process for a portfolio, it is important to have a clear understanding of the historic performance of similar types of debt recovery.

This information can be gathered by compiling data on the percentage of recovered sums and the time it took to recover them (measured in weeks, months, or years).

It is also important to consider the costs associated with the collections process, such as the salaries of call center operators or field workers, the cost of phone calls, postage, and personal visits.

How to Determine Debt Recovery Costs

Once you have a clear understanding of the historical performance of debt recovery and the associated costs, the next step is to estimate the future effectiveness of debt recovery and the associated costs.

This involves projecting the percentage of recovered sums and the time it will take to recover them in the future, based on the length of time you anticipate being actively engaged in debt recovery.

You should also consider the costs associated with debt recovery in the future and determine the desired level of profit.

How to Estimate Future Debt Recovery

To determine the maximum price at which you will consider purchasing the portfolio, you should factor in the data collected about the historical and future effectiveness of debt recovery, as well as the costs associated with the collections process.

You should also consider the following minimal details for portfolio evaluation:

• The number and average amount of debts in the portfolio
• The source of debts (bank debts, mobile operators, energy, etc.) and the specific products
• Secured vs. unsecured debts separation
• Type of debt (e.g. installment, revolving, lump sum)
• The type of debtors (private individuals or companies)
• The age of the debts (number of days past due)
• The method used for debt recovery before the portfolio was acquired (in-house, primary, secondary, tertiary, or judicial)

What are collections buckets

It is also important to consider collections buckets, which are categories that divide the debts in the portfolio based on the length of time they are past due.

Collections buckets are typically broken down into 30-day increments, such as 30-60 days past due, 60-90 days past due, etc.

By analyzing the debts in each collections bucket, you can gain a clearer understanding of the potential for recovery and estimate the flow rates for each bucket.

What other factors should be considered

In addition to the minimal details for portfolio evaluation, it is also important to consider other factors that may affect the effectiveness of the collections process, such as:

• The legal and regulatory environment in which the collections process operates, including any changes to legislation or regulations that may affect the ability to recover debts
• The availability and quality of data on debtors, which can affect the ability to locate and contact debtors and assess their ability to pay
• The technology and tools used to manage the collections process, including software for tracking and analyzing debt recovery data, as well as automated tools for contacting debtors and managing collections workflows

By considering these factors and incorporating them into your analysis of the costs of the collections process, you can develop a more comprehensive understanding of the potential risks and rewards of acquiring a debt portfolio.

Flexibility and Adaptability in Debt Collection

It is also important to note that the collections process is inherently unpredictable, as the ability to recover debts can be affected by a wide range of external factors, such as changes in the economy or shifts in consumer behavior.

As a result, it is important to maintain a flexible and adaptable approach to collections management, and to continually monitor and analyze data on debt recovery performance in order to make informed decisions about portfolio acquisition and collections strategy.

Key to Informed Portfolio Acquisition

Overall, estimating the costs of the collections process for a portfolio requires a detailed understanding of a range of factors, including historical and future debt recovery performance, associated costs, and other factors that may affect the collections process.

By gathering and analyzing data on these factors, debt collection professionals can develop a more accurate and comprehensive understanding of the potential risks and rewards of portfolio acquisition, and make informed decisions about how best to manage the collections process to maximize recovery and minimize costs.