5 Common Misconceptions About Debt-Selling Debunked
Managing account receivables is an important part of every business and must be handled just like any other asset. Account receivables must be calculated and recorded properly, which can sometimes be a difficult task to manage internally. Outsourcing the recovery or selling of non-performing account receivable provides direct and tangible benefits to many successful businesses.
The process of selling account receivables can seem complicated, but it doesn't need to be. As an industry leader, Jefferson Capital Systems brings 20 years of debt-purchasing experience to the table. In this article, Jefferson Capital will debunk some common misconceptions about the debt-selling process.
Misconception #1: Debt-Selling Isn`t Worth the Effort for How much Return It Yields
In the highly regulated world of financial services, selling account receivables can be daunting. It can also be a profitable solution for what to do with non-performing assets. It is important to take the time to evaluate a portfolio of account receivables and look for opportunities to not only maximize recovery, but also satisfy a company’s regulatory and compliance requirements. Working with a reputable debt buyer can help identify solutions that return liquidity to the seller, while creating a stable and predictable cash flow. Check out the article below to learn more about how this process works and how Jefferson Capital partners with debt sellers to provide solutions.
Read More: How Debt Buying Works
Misconception #2: It’s Better to Recover these Assets In-House
Debt collection is generally not considered a core competency for most creditors. The practice of debt collection has become a highly regulated area that is ripe with legal, regulatory, and reputational risk. There can also be a long “tail” to the collection process. Even after an account is placed into active collections, it may take years to receive a recovery, if ever. When the risks and costs that come along with debt collection are factored into the equation, firms often find the immediate return of liquidity through a debt sale is the best business decision.
Check out the article below to learn how the sale of non-performing account receivables can free your internal resources and provide immediate liquidity.
Read More: Single Most Overlooked Factor Driving Your Receivables Recovery: TIME
Misconception #3: Debt Selling will Cause Brand / Compliance Issues
The impact of a debt sale upon a company’s reputation is a common concern and an important consideration. Two things come to mind. First, do your homework when choosing your debt-selling partner and ensure they have the infrastructure and industry expertise to manage your debt. RMAi, which is the debt buying industry’s trade group, maintains a certification program that ensures a debt buyer is legitimate and follows ethical practices. By working with a certified business, a debt seller can avoid working with a fly-by-night operation that may put the debt seller’s reputation at risk. Second, by selling account receivables, a creditor can reduce its own compliance risks. Once an account is sold, the creditor’s credit bureau reporting obligations are reduced, and the creditor ceases its interaction with the consumer. Jefferson Capital has a 20-year track record of protecting its partners’ reputations, while following best practices for compliance with all local, state, and federal regulations.
Read the articles below to learn more about the RMAi certification program and how caring for your reputation should be everyone’s priority.
Read More: Business Certification - Receivables Management Association International (rmaintl.org) and Caring For Your Reputation Should Be Everyone's Priority;
Misconception #4: Retaining Ownership of Accounts will Maximize the Return
As account receivables get further away from the date of last activity, recovery becomes less and less likely. This is especially true for organizations that do not specialize in debt collection. Debt buyers have processes and the specialization in place to manage accounts for their entire lifecycle. A debt sale allows the creditor to focus on its core mission and often obtain a higher return, than allowing an asset to grow stale.
Most debt-selling companies see operational and financial improvements from the sale of account receivables thanks to the immediate liquidity of older receivables, which allows for re-investments in more profitable investments. With uncertain financial times on the horizon, collections will become more difficult, and this might just be the year to start a debt-selling partnership
Read More: Why is 2023 the Year to Look for a Receivables Management Partner;
Misconception #5: Companies have Bad Experiences with Debt-Buyers
Do your homework. Often when companies search for a debt buyer, they focus solely on price. And while price is important, working with a reputable and certified debt buyer reduces the seller’s reputational risk. Creditors must partner with reputable debt purchasers to satisfy reputational concerns and regulatory requirements. As part of those obligations, creditors must vet potential purchasers of the accounts to ensure the debt buyer complies with all collection laws and obligations. The creditor must also provide sufficient documentation of the account to the debt buyer to fulfill the debt buyer’s obligation to establish the amount owed and its ownership of the account. A debt buyer’s proven experience, compliance track- records and ample and ongoing funding are key points to differentiate a promising long-lasting partnership from a potential risk to the debt selling company.
Read the article below for the Top 5 Criteria to consider when searching for a debt-buying partner.
Read More: Top 5 Criteria When Looking for a Debt-Sale Partner
*BONUS*
Are you a first-time seller or interested in knowing more about it? Contact our business development team to receive more information or read the article below called New to Selling?