The marked slowdown in the debt purchasing and collections market over the past couple of years is more than a phase triggered by the lingering effects of COVID stimulus and lender forbearance, but rather a structural change that will have a lasting impact on how businesses manage their receivables.
This is the view of Andrew Smith, the chief executive of receivables management specialist Credit Clear, which offers a technology platform designed to allow businesses to better manage their collections.
A number of companies, including Credit Corp and FSA Group have detailed in their 2021/22 financial reports that debt buying and collections activity remains subdued, despite their expectations that it would have picked up by now.
Collection House went into administration in June, with the slow recovery in collections cited as one of its many problems.
Personal insolvencies were at a record low in the year to June. Commentators have said things will return to normal but later than they had expected.
Smith said there are other issues at play besides COVID. The Hayne royal commission was critical of the collection practices of many financial services companies and since then lenders have been more inclined to manage collections themselves in a more accommodative way.
By the time COVID came along, many businesses were already applying greater levels of forbearance and offering more flexible arrangements. COVID measures accelerated a trend that was already in place.
“We have seen one major bank and a big telco stop selling debt altogether. Debt sales are about a third of what they were a few years ago,” Smith said.
“Now many companies have put systems in place to manage their debts themselves, so we expect that to continue. Developments in technology are part of the change.
“The opportunity Credit Clear has identified is that consumers could be willing and able to either pay in full or start to contribute towards a reduction of their overdue invoices, however due to traditional methods of collection they were not presented with a simple solution to do so.”
The company’s 2021/22 financial report shows that it added 215 clients during the year, taking the total to more than 1000 (696 are active).
Revenue rose 95 per cent to A$21.5 million. The company reported a loss of $12.6 million and an EBITDA loss of $8.5 million.