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How Debt Buying Works

By Penny Campbell, Vice President, Business Development

New to debt selling? That’s okay, many companies are. Here is a guide that helps explain the process.

First of all, what is a debt buyer?

A debt buyer is a company that purchases debt from creditors. The debt buyer pays fair market value for the debt’s outstanding balance. The debt buyer then collects on the accounts it has purchased, either directly on its own, or through third party collection agencies or law firms.

  • A debt buyer purchases a creditor's debt at the current market value of the outstanding balance in order to recover on it.
  • Creditors sell their debts to achieve different objectives – including recovering on their capital investments, reducing their loss provisions, re-deploying their resources, or generating a tax write-off.

Debt buyers purchase charged off or delinquent accounts that arise from many different types of accounts. Examples include credit cards, installment loans, automobile loans, medical expenses, retail sales accounts, telecommunications and cellular telephone bills, and utility bills.

How Do Debt Buyers Create Value?

If a creditor is unable to collect payment on their outstanding accounts, they typically try to recover some of the value and minimize their losses. There are times when a creditor sees limited opportunity to recover payment within the time frames that were originally anticipated when the account was opened.

Rather than continue to wait for the account holders to pay off the delinquent debts in full, the lender may either continue to work the delinquent accounts or they can engage a debt buyer and receive an immediate return for the value of their outstanding accounts.

When should a Creditor Consider Selling Delinquent Accounts?

Generally, it makes sense to sell delinquent accounts if the creditor needs one or more of the following:

  • To improve their liquidity or obtain a cash injection
  • To obtain a stable and predictable cash flow (by selling on a monthly forward flow basis)
  • To create a Profit & Loss lift on their Income Statement
  • To focus its resources on its core operations or other higher-return areas
  • To rationalize the overhead associated with its collection efforts
  • To create a stable offset of loss provisions that can enhance the predictability of its financial results

Above all, a debt sale allows a creditor to pass all of the risk that it (or its collection agencies) have over to the debt buyer to meet their net collection goals. It can then focus its resources, people and capital on what it does best - - its daily operations or new endeavors.

What does the Debt Buyer do after Acquiring the Accounts?

The debt buyer, after taking ownership of the delinquent accounts, relies upon its specialized expertise and years of collection experience to properly, efficiently, and effectively contact the account holders, listen to their concerns, and seek solutions that result in recovery on the accounts that the debtor can afford. This may include restructuring the debt and entering into short or long-term payment plans. It is able to do so because oftentimes the debt buyer has more flexibility than the original creditor in determining solutions that work for the debtors. Among other things, they frequently have a long-term view of recovery that serves both the consumer and the debt buyer.

The Wrap

Active management of receivables is an important component of every business that cannot be overlooked. Partnering with a reputable, experienced, and knowledgeable third party with decades of experience in recoveries can result in lower costs and enhanced returns on your receivables. Jefferson Capital is a leading buyer and servicer of charged off and bankruptcy receivables across the United States, Canada, and the United Kingdom. Our expert valuation team works with large and small companies to identify solutions for their receivables. They routinely work with companies and individuals who are new to debt purchasing and sales, and partner to tailor solutions that fits their needs.

If you, or someone on your team, would like to find out more, please contact Penny Campbell, or Bob Maisel, To learn more about Jefferson Capital, please visit As a receivables management company celebrating its 20th year in business, we have a proven track record of being able to listen and provide solutions that work for you and your company.

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