Debt Buying isn’t Debt Collection. It’s a much different beast.

30 May, 2019

Debt Collection

Debt collectors act as agents for creditors and take a percentage of what they collect. Twenty percent is standard. For this the debt collector will phone, write letters, and sometimes arrange site visits.

Which, you might think is exactly what credit controllers do, so, why would anyone employ a debt collector?

Two reasons.

Firstly, debt collection isn’t just about phoning the debtor every day until they break. There is a psychology to the process and debt collection firms and their staff becomes adapt at managing debtors. Debt collection firms become very efficient at managing debtors and can collect debts for less than an in-house credit controller.

Secondly, a credit controller isn’t tasked with chasing down every dollar, but with ensuring the business has enough money to make payroll. To do this it is more efficient to call good clients who are likely to pay than waste time haranguing deliquiates and listening to their ever-expanding reasons for not paying. Debt collection firms employ a strict process that means every debtor is called and no one falls through the cracks.

There are limits, however, to even the most persistent debt collection firm’s ability to extract money from debtors who are either uncontactable or, even more problematic, manufacture disputes. A disputed debt must be processed through the courts. Professional debtors know this and create disputes to avoid paying.

When a debt is disputed it becomes uneconomic for the debt collection firm to continue to work the file. As an example; if the debt is $10,000 and the debt collector is on a 20% commission, they will need to spend no more than $2,000 worth of work to make a profit on collecting the debt.

Once things get legal, the economics go south very fast. Professional debtors know this and use this to their advantage in evading their responsibilities.

 

Debt Buying

Debt buying turns this analysis on its head. The debt buyer, rather than working for a commission, purchases the debt outright. They can then spend whatever they need to in order to get paid. This creates several problems for the delinquent debtor.

One; Any competent debt buyer has their own team of in-house lawyers. Once we buy the debt our in-house legal team can commence litigation. We issue legal proceedings and the debtor must then engage with a lawyer rather than just email in a dispute.

Two; A debt buying firm cares about their reputation. It is in our interests to get paid, and even if we spend more on collecting a debt than what the debt is worth we will still proceed, because we care about our reputation. This, perversely, means almost all debtors prefer to settle, but those who insist on their day in court will be given that opportunity.

 

Buying Debt – The Tempest Options

At Tempest we will either buy the debt outright, or we will buy the debt for a small sum and then agree to pay the vendor a percentage of any recovery.

At Tempest:

  • ALL legal costs are covered by Tempest
  • No money is required from creditor to take the next steps
  • We have in-house lawyers who directly work on the file and none of the time spent is added to costs
  • No recoveries = no fees
  • Tempest takes on all the risk and does all the work required, which is why the split is arranged on recovery

In the case Tempest is not successful on making a recovery to settle the debt, we will proceed to bankrupt or liquidate the debtor.

 

Summing up the main differences

Debt Collection Tempest
For easier, undisputed debts

For debts that are harder, which debt collection agencies are unable to collect

Creditor bears all up-front legal costs Tempest covers all up-front legal costs
Creditor must hire their own lawyer In-house legal team which you do not get billed for
Creditor bears the risk & costs for a potential recovery Tempest bears all the risk & costs for a potential recovery
Any recoveries made go to the creditor Any recoveries made are split after up-front legal costs are repaid
No recovery = all costs lost No recovery = no fee, therefore no loss to the creditor
Further costs to bankrupt or liquidate debtor if debt is unsettled No cost to bankrupt or liquidate debtor if debt is unsettled