The State of the Industry: What is Next for ARM?

Every year at Kaulkin Ginsberg, we kick off the New Year with a retrospective on the past year’s milestone events and take a careful look at what we believe lies ahead for the accounts receivable management industry (ARM). Our goal as a firm has always been to share our perspective to support credit and collection professionals in their strategic business planning.

In over 16 years, we’ve lived through many highs and lows of the ARM industry, from the emergence of debt buying as an industry segment in the late 1990’s to the lean recovery months after 9/11 and hurricane Katrina. Like many of you who are also industry veterans, we’ve learned from each market cycle. All indications are that the U.S. economy has already entered a recession which will inevitably place serious pressures on recoveries for credit grantors, debt buyers, service providers, and even vendors in 2008. This should not be viewed as a time for panic. We are confident that companies who accept the challenges and learn how to adjust their strategy will be even stronger when the business cycle inevitably turns up again.

Opportunity often hides in adversity. As you read through our recap of the significant events of 2007 and the emerging trends we see in 2008 and beyond, I hope it will spark ideas for how your company can maintain or increase its competitive advantage:

• Economic conditions will impact recoveries going into 2008 (see below)
• Mergers and acquisitions are still active, but some buyers are changing strategy (see Page 2)
• Trends are shifting on the pricing of delinquent debt portfolios (see Page 3)
• Other important areas to watch closely in 2008 (see Page 4)

In good times and in bad, our mission at Kaulkin Ginsberg has never changed. We are constantly striving to deliver successful solutions to our clients’ business challenges. I hope this information provides some useful context for you as you develop and implement your own strategy for growth or exit. If you ever have any questions about the changes that are occurring in the industry, how these changes might affect your business, or how we may assist you, do not hesitate to confidentially and confidently call me or a member of our advisory team.

We look forward to speaking with you.

Mike Ginsberg
President & CEO

Economic conditions will impact recoveries in 2008

The sub-prime mortgage crisis, decreasing home prices, and the credit crunch are already impacting credit and collection professionals at every level. Adding fuel to the fire, the unemployment rate has crept up to a 2 year high of 5% as the problems in the housing market, coupled with a disappointing holiday shopping season, forced some sectors of the economy to add far fewer jobs than originally forecasted. (It is interesting to note that the services sector, which includes ARM companies, actually fared better than most, adding nearly 100,000 jobs last year.)

Even though most economists would argue that we’re not yet in a recession, many consumers are already behaving as if we are. Those who are providing ARM services to credit grantors, including collection agencies, collection law firms, debt buyers, and other vendors, will undoubtedly feel the effect of these tumultuous economic conditions on collection results if they haven’t already. In our debt-based monetary system, consumers and businesses alike are finding it increasingly more challenging to repay their past due accounts. As a result, charge-off rates are increasing and credit grantors are reacting by scrutinizing recovery strategies, causing abrupt and sometimes unexpected changes in debt sales and placement activities. The choices made at the credit grantor level will impact all of us in the ARM business, both in the short term and for many years to come as we adapt to market conditions forced upon us.