Managing cashflow
Financial World Solutions, LLC.
The role of the debt buyer in managing cashflow
Unrecovered debts are the scourge of any business but the current economic climate means that revenue is at a premium more than ever. Therefore an increasingly common option to consider is allowing an outside company to purchase the debt portfolio, thus freeing up resources as well as bring in a source of revenue.
The costs of managing customers who are in arrears with their debts should not be underestimated but with some of the effects less tangible, it can be difficult to quantify revenue lost.
In order to stand any chance of recovering the debt, payment must be chased persistently and assertively without breaching harassment laws. In the first instance this means trying to ascertain what the most up to date contact details are, no mean feat as this may involve having to get a trace carried out. Once established, trying to make contact and enter into a dialogue to negotiate a payment schedule is the next hurdle to be faced, with the final step trying to extract a payment from the customer when due.
All of these measures are very resource-hungry meaning extra staff need to be retained to carry out the work, plus the costs involved in tracking and contacting the debtor - both of which mean time spent away from the real needs of the business.
Maintaining a healthy cash flow around the business is essential to stay afloat - very few business have enough surplus capital to be able to pay staff and expenses as well as make necessary purchases without receiving a regular revenue stream. It is also vital for any business to know exactly what is on their books and what they can realistically expect to receive in payments, which is where bad debtors can distort a business plan leading to inaccurate assumptions about cash flow.
There are a number of advantages to putting a debt portfolio out to buyers, both in terms of real expenses as well as implied costs.
Once debts are removed from a business, it is better able to chart profit and losses and more accurately predict what the cash flow position is likely to be in the coming months. Cash flow is also improved by the removal of expenses such as solicitors` and court fees for chasing debts as well as reduced costs for the work carried out in-house.
Writing off debts that cannot be recovered can also have tax advantages and many buyers of debt portfolios are able to help provide the necessary evidence to demonstrate this.
However, before allowing debt buyers access to information, is it essential that any business questions the cost-effectiveness of the potential sale and identifies what level of income needs to be generated to make it worthwhile. Many firms fail because they do not take the time to complete an accurate risk analysis and present potential buyers with half-baked information that can be pulled to pieces. It is essential to identify what proportion of the debt is potentially recoverable and that means making an assessment of the age of the debt as well as the history of the accounts.
Whilst it is always worth considering trying other methods to recover the debt before passing it on to a buyer, bear in mind that the number of agencies that have tried to collect reduces the overall value. A usual sum to receive for a portfolio is between 3-16 % of the total face value but this will fluctuate depending on the quality of the debts put up for sale.
Of course, passing debts off to a buyer is not the only way to improve cash flow through a business, although it does free staff to focus on the areas which are more profitable. Every home and company would benefit from regularly checking their outgoings such as insurance and credit facilities via a comparison website such as moneysupermarket.com in order to ensure they are getting the best deal on the market.
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Key factors in analysing a debt portfolio
The current economic climate means that there is an increasing number of debt portfolios up for sale, but the volatile market conditions means there is an even greater chance to end up losing money. It is therefore essential to ensure that the portfolio is properly assessed prior to purchase.
There are many tools available to buy which offer prospective buyers the chance to assess debt using an automated method. However, it is also possible to analyse the portfolio using a variety of individual components to establish the likelihood of securing returns.
When analysing a debt portfolio, many buyers may rely on statistics produced by the company offering the debt for sale but in reality, it is far better to carry out a separate study. Most companies have little idea of what proportion of their debt is still collectible and the data offered is frequently little more than a set of randomly assembled details.
One of the key factors to consider when looking at a debt portfolio is how much of it realistically will be collectible? This not only decides whether it is a business venture worth pursuing but also the price that should be offered.
One of the fundamental drivers in determining the likelihood of repayments is the age of the debt. According to a major study carried out in the US by the Commercial Law League, at the point of the debt falling due the probability of getting a payment is around 98%. In the first two months the tail-off is relatively slow reaching approximately 85% after this time, a drop of only 13%. However, given another month the likelihood of payment falls by 12% to 73%, after six months the chance of the debt being paid has plummeted to 56% and one year sees a repayment rate of just 28%. Although there will be variances between different markets of debt, the pattern remains the same; older debts equal greater risk.
There are several other key pieces of information which should be made available for analysis and this includes the balance of the indebted accounts, prior collection rates and what efforts have been made to collect previously. All of these factors will greatly influence the potential success rates and the value of the portfolio.
This is of course the bare minimum information which should be available for analysis and should be used to come to an initial conclusion about whether the portfolio is worth purchasing. The potential buyer should also consider facts such as the likely cost that collecting is likely to incur and the length of time the collection is likely to have to be sustained for as well as whether the account is one which matches previous collection experiences or whether it is beyond in-house expertise. Financially it is also important to be certain what level of gain is necessary in order to cover the purchasing and collection costs and still make a healthy return.
Once a debt portfolio has been identified as having true potential it is worth investing in further analysis in order to get a more accurate picture of likely return rates and to value the deal. Most basic packages available on the market are able to check the number of debtors who are deceased as well as identifying those who have entered into bankruptcy and check telephone numbers.
However, there is also software available which can help during the due-diligence process to provide a far more in-depth level of assessment. As well as checking information such as security numbers, some of the tools on the market are also able to provide an indicator of the number of accounts likely to be recovered.
For those considering entering into the debt portfolio purchase world to make money saving money on the initial purchase can be vital to making the deal profitable and investing in an account with software analysis tools may be a worthwhile investment in the longer term.
Changing your business mindset for new levels of performance!
Our economic landscape has transformed dramatically over the last few months with predictions of a hike in bankruptcies and repossessions starting to materialize and numbers facing bankruptcy rising by 7% in the third quarter. At the same time, statistics from the Council of Mortgage Lenders show that the number of homes being repossessed by mortgage lenders also rose in the third quarter by 12% to 11,300. Unemployment is at an 11 year high with economists predicting it could top two million within months, while The Bank of England has forecast that the economy will contract sharply in 2011. Whether the measures outlined in the Pre-Budget report to improve liquidity for business and boost consumer spending will jump start the economy, remains to be seen. In the meantime, it seems certain that conditions are likely to get worse before they get better.
Now you have just been served the mass media message of doom and gloom. Again, we at Financial World Solutions elect to clearly see the opportunities associated with our current economic backstage as opposed to accepting the disparagingly negative sound bites others choose to follow and believe. By adapting our new business model, new technologies and Industry contacts allow us to meet the needs of our clients with ease of transition, solid communication and follow up.
Many would assume that the current world economic crisis would provide the ideal conditions for debt purchasers to thrive - with more and more people struggling to manage their finances and debts. However, debt purchasers, like most other businesses, are not immune from the economic downturn. Dented consumer confidence and a lack of refinancing options available have had a huge impact on the collections environment. While more work is flooding into the industry, most debt collection operations are struggling to get settlement of debt in the same way as before. We have seen a shift in repayment patterns towards smaller amounts spread over a longer period with fewer debtors making larger one-off payments.
It is not just consumers who are finding new lines of credit harder to come by. Purchasers too are finding it tough to fund the acquisitions of portfolios as banks' lending has become more expensive and criteria more stringent. The huge expansion in the debt purchasing market over the last five years means many companies are still in their infancy and banks are looking more closely at companies' track records as a determining factor in deciding whether to renew credit and on what terms.
More merger and acquisition (M&A) activity looks certain as many businesses who have not prepared for the current climate start to falter while smaller players are likely to get swallowed up by those more robust. However, not all debt purchasers have the financial reserves available to back this up. Banks' current short term and cautious outlook is causing the collapse of potential M&A deals as those looking to acquire a business want a longer term commitment of finance which is difficult to secure at the moment.
The deals that will go through are the ones that are small in size and will not require a lot of bank finance - or where the existing owner has to sell and isn't too concerned about the price they get. I believe that there will be more strategic deals and use of capital during these credit-stricken times. Our perspective at Financial World Solutions is undeniably positive. We choose to find the opportunities that exist in this time of critical business environment changes. We choose to do the hard work; finding the most productive and forward thinking companies to associate and do Industry Compliant business with.
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How to Increase Workplace Productivity in 2011
2011 is the year to be more productive. Getting
more done with less will help to ease some of the stresses and
strains of the economic downturn. Increasing workplace productivity
through simple changes in your working habits can impact the
bottom line in a major way if you and your team take a disciplined
approach to your day.
Stress kills! Let's all enjoy our professional and personal
lives by simplifying and managing everything more productively
to serve us all better!
Critical Steps
Create a list called follow up. When someone asks
you to do something via Email or telephone, add it to the list.
Schedule times of the day or week when you action follow ups.
You decide how you run your day.
Turn
off your Email client. Only reach for that Outlook
button two or three times a day. Do not become a slave to your
Email.
Abandon all forms of paper signatures and contracts.
Get things signed faster and smarter - avoid delays in contract
signature by going digital. It is legal and seriously cost effective.
Take a look at how easy it is at Echosign.
.
Learn what RSS
is and use it. It will make you a better, more efficient
business person within hours .
Stop spending hours searching for files and data.
Stop right now, reorganize your data structure if its not working
for you and if in doubt, seek advice on how to do it.
Put an out of office message on your Email which reads like
this: Thanks for your Email. Today, Tuesday, I will
only be accessing Email 2 or 3 times a day during the day and
so may not reply immediately. If you request is urgent then
call me on _____Update the message every day. Your people will
soon get the message.
Leave the office when things get tough. Leave your
working environment - go for a walk, run, drive or cycle for
an hour to clear your mind and give it time to think. You will
be more productivity and more creative when you return.
Shortcuts
can shave hours of a week. Learn some basic
PC shortcuts - stop doing things the long way round. Multiply
up the time savings across your office and you will be surprised.
Talk
to your team. You are always looking at way to trim
costs, right? When was the last time you looked at how your
business wastes time with unnecessary processes? Schedule a
meeting right now and kick off the trimming process immediately.
Make a commitment to you and your team to make 2011 the year
to really focus at increasing workplace productivity.
Look for relevant Accounts Receivable Management training which
can really motivate you and your team to become more efficient
as an organization for virtually no cost. Here's to a productive
and prosperous 2011!
Sources and Citations
Relevant example training course:
Increasing workplace productivity
Excellent web resource
Lifehacker - productivity tips
Another
great place for
productivity tips Increasing workplace productivity
"Prudent
adherence to ACA International's Code of Ethics and Code of
Operations is imperative"!
Financial World Solutions
CEO, Douglas Yuschalk
Tips
No
matter what type of goals you set, you should always find something
to track its progress. The benefit of doing this is that you
will always know whether you are making progress or not. If
you are, you will feel encouraged and become confident that
your goal is reachable. If you aren't, you will know immediately
that what you are doing isn't working for you, and it isn't
moving you any closer to your goal. Then you adjust your plan
and find something else to try, until you have found the right
way to do things that will eventually achieve your goal.
Setting
and achieving your goal shouldn't be that hard once you have
learnt how to effectively track your progress. All you need
to remember is to review your goals regularly, break things
down into manageable steps, make it measurable and finally track
your time working on your goals. Once you have mastered to do
these things, you can accomplish anything you want.
*
How to Achieve Short Term Goals
*
How to Reach Your Hardest Goals
*
How to Accomplish a Goal
*
How to Set Goals for Life
Sources and Citations
Goals
On Track
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Leadership is often defined as getting other people to do what
you want. Using this definition it is no wonder that many people
revert to using underhanded tactics to try to "Trick"
their followers into doing what they want. This is a shortcut
to leadership and doesn't result in long term value. It is this
type of "Leadership by trickery" that makes people
automatically suspicious of their leaders. If you want to develop
a long term foundation for leadership, these types of short
cut tricks will only prevent you from achieving your goals.
Once some of your followers realize that they have been tricked
you will lose any credibility you started with.