Something changed in the collection industry and something even more dramatic changed in markets collection agencies serve. Not every company was prepared or adjusted for it. In particular, the smaller hometown collection firm has struggled to keep pace with this force of evolution our businesses haven’t seen since the advent of the computer.
First, let’s define a small collection agency for the purposes of this article. In my service to ACA International members as a Certified Instructor for the past 10 years, I have had the chance to meet with hundreds of collection agency professionals from across the country. We talk about their operations, methods, pain points and almost anything and everything debt collectors are involved with. I have taught compliance classes with the phrase “small agency” in the title, and over the years I have noticed a trend. Ten years ago, most of the attendees for these classes were from companies with less than 50 employees, and almost no attendees from companies with 100+ employees. Two years ago I taught a class with over 80 people in it and more than half the attendees worked in companies with over 100 employees and a handful worked for companies over 250 employees. “Small” has grown larger in a very short time!
Next we can look at the industry as a whole and see fewer collection companies in the marketplace. The CFPB reported a 25% decline in companies between 2008 and 2013. IBISWorld reports starting in 2015 to present, the total number of debt collection companies has decreased 3.6%, total revenue is down 2.9%, and total employees has gone down 2.8%. Consolidation in the healthcare and financial markets have had significant impact on industries serving these businesses, and debt collection has been impacted significantly by federal regulations enacted in the past decade. 10 years ago in my home state of Oregon the Oregon Collectors Association had 82 members, this year we will have about 54, down 34%. These were small businesses. In many cases they were family-owned and operated, working with their hospitals and banks and clinics and clients in the towns where they lived, worked and raised families.
Business stands still for no one, even if you have invested your entire life into it, have great relationships with people in your town, know the business better than most, and connect and contribute to all the causes you and your clients care about. I have seen more than a few debt collection companies 25 years old and older not worth anything on the open market. The owners worked and put their life into something that didn’t keep pace with the competition, marketplace, and regulators and now they have little to show for it. What does the “small” agency do to avoid joining the tyrannosaurus, dodo and passenger pigeon?
Keep An Eye on Clients
Do not ignore the writing on the wall. Consolidation, mergers and acquisitions will target all sizes of companies. Plus, federal regulation always brings consolidation in the market being regulated. Maybe your company is “too small” to be directly impacted, but what about your clients? Is the future going to be better for healthcare and financial sector expansion, or continue to challenge hospitals and banks to get bigger and stronger so they don’t fail? The only real protection is to not be overly dependent on a single client for placements or revenue.
Respect Your Relationships
Do not take your relationships with hospital CEOs and bank VPs for granted. They may not be there to make the decision to keep you as their preferred vendor. I cannot list the number of collection agency owners I know who had relationships with great clients for 20+ years see it simply end when the new company took over and brings in an existing relationship with a different, larger firm.
In my experience, the smaller agency owner has always looked at the personal relationships they have with decision makers as protection against being deselected. When the client gets acquired, sold or changed, that person may no longer be the decision maker and relying solely on that relationship won’t help. You must build your company to be the value, not just the handshake of the CEO or administrator. When a new decision maker comes in, you can sell your company’s value, not just the fact you have been there and doing that for 20 years.
Take a serious look at your capabilities. Our clients are evolving and changing into the 21st century and beyond. Our competitors are working on things like artificial intelligence collectors and 24/7 services for the next generations. If you want to work with your clients in the next decade and beyond, you will need to offer services that companies with 500+ employees take for granted. If you work healthcare, can you receive and send daily file transfers to multiple platforms and systems.
If you work financial debt, are you able to meet the compliance and certification requirements like SSAE SOC 2 or more? Is your infrastructure capable of meeting dozens of customizations for each of your clients for reporting, file transfers, security and work protocols? These may not have been the demands of the hometown client and agency in the past, but as consolidation continues it will be the requirements in the future for our clients and their preferred partners.
Maybe your legacy is to transfer your company to your children, sell it to your employees or even sell to a competitor and head to the Caribbean. Take a hard, honest look at where your company will be in ten years if you decide to do nothing and ignore the world around us. Will your company evolve into the next best thing or will it be buried in the wake of change, left to a barren rock pile of other businesses whose owners failed to act?
Brian Watkins is the president of Southern Oregon Credit Service. Starting as a salesperson in the collection industry in 1990, he purchased Southern Oregon Credit Service in 2001.Their largest sectors are healthcare, government and college collections.