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Debt collection outsourcing increases

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Companies are increasingly outsourcing their debt collection to specialist debt collection agencies, a move that is expected to see an increase in money recovered from indebted individuals and companies.

This is according to Rob Rafferty, CFO at FutureSoft, the developers of the Excalibur industry-leading debt collection management system.

He said the debt collection industry in SA employs tens of thousands of people. While statistics are hard to come by, a reliable source, in 2014, claimed that – at that time – debt collectors were chasing debt worth more than R75-billion.

“At the end of the day, they may only recover a few cents in the rand, but it is nonetheless a huge market.

“In terms of outsourcing, every business must ascertain whether it should perform debt collection internally or outsource this function to a specialist agency. The ultimate decision largely depends on the skills inherent in the company and the capacity of their overall resources. Budget is also a significant consideration as outsourcing this task could cost less at the end of the day – rather than handling it internally,” says Rafferty.

But it is certainly a fact that a large number of companies simply don’t have the internal skills or resources to effectively chase debt.

Outsourcing is also generally done on a “no gain, no pay” principle.

“This means that companies only pay recovery specialists when debt is actually recovered. If the debt collection entity is successful, this route can save companies considerable expenses, and bolster their coffers through the increased debt recoveries.”

The strategies followed by outsourced debt recovery teams include tracing debtors, collection prioritisation, concluding acceptable payment arrangements, monitoring of unpaid debt, as well as enforcement via the legal system if required.

Traditionally, companies have generally handed over debts to specialists to recover after 90 days. These days, there is an increasing trend to hand over debtors at an earlier stage.