Credit code slows down debt sales

Receivables manager Collection House managed revenue growth of just one per cent and suffered a fall of almost five per cent in operating cash flow in the year to June, as it sat out of an overpriced delinquent debt market.

The company spent only $12 million acquiring debt in the December half and $29 million in the second half.

Collection House chief executive Tony Aveling said the company had a stronger pipeline in the current year and was expecting to purchase up to $47 million of debt.

Aveling said: "For much of the year market prices for debt were unrealistically high. Because the recoverability of debts declines during difficult economic times, Collection House restricted its buying to situations where lower recoverability was matched by appropriately reduced prices.

"Our view now is that market conditions are better. Recoverability has improved as a result of lower unemployment and higher levels of consumer confidence."

Aveling said another negative for the company was that forward flow arrangements with vendors were affected by reduced originations in areas such as credit cards and personal loans.

He said the company was working to expand its client base. Traditionally it has worked with financial institutions but it expects to be doing more business with telecommunications companies, energy suppliers and local councils.

Despite the flat revenue, Collection House increased earnings by 21 per cent, with net profit up from $7.4 to $8.9 million. The tax bill was lower, there were no exceptional items (which had hit the bottom line in the previous two years) and costs were down.

During the 2009/10 year the company replaced a $75 million debt facility with a three year $85 million facility.

Aveling, who retires at the end of the month and hands over to Matt Thomas, said a challenge for the current year would be to bed down changes brought about by the introduction of the National Credit Act.

The increased emphasis on responsible lending and better management of hardship in the new legislation meant that receivables managers, like other lenders, had more compliance work to do.

Aveling said banks were being more careful about the collection agencies they dealt with. The new rules will favour companies with strong compliance regimes and ethical collection practices.

He said: "The changes will help us but there is a fair bit of work to do first."