My Thoughts From Nashville

After attending some meetings in Nashville last week I have returned with some thoughts about the legal debt collection space and its future. The first thing I noticed in the Omni Hotel lobby was a change of the average age of the attendees of the NARCA conference. Many younger faces were wearing badges that branded them as attendees of the conference. As I began to look at the firm names on many of the badges, I was left with two distinct thoughts.  First, the average age of attendance was much lower and secondly, the older, familiar faces were not there. Many have retired, sold their firms or just handed over the keys and moved on.

I have been around the industry for many years and personally know hundreds of law firm employees and many of those friends were not in attendance at this year’s conference. In fact I was there to host a private party for many of those friends and a few new friends in the industry with another industry veteran Ranjan Dharmaraja from Quantrax. We had a great turnout at the party and are starting to see a change in attitudes about the marketplace, but more on that later.

Compliance has finally become part of doing business and not the hot topic for discussion. It seems that the firms that were so focused on the cost and processes of compliance have finally realized that this is the new normal and just part of doing business as the marketplace has evolved. Now the focus is how to be more compliant and control costs at the same time and this is driving firms to seek out vendors and consultants that have the answers.

Another thing that has changed dramatically is the client list of many law firms.  A steep decline in placements from debt buyers, both large and small, has drastically changed the makeup of the law firm client base. With fewer buyers in the marketplace today, and issuers holding more of their debt for collection or legal recovery, many firms are seeing more stringent work standard requirements as the more conservative issuers place their accounts with law firms.  The result of this is more compliance oversight and cost for the firms working for original creditors.

Technology is changing and advancing to the increased compliance needs of the marketplace.  As the demand for more complex work flows is placed on law firms, and the demand to create more automation increases, many firms are looking for a better solutions than the old school software that they have been using for years. It is my opinion that as some software vendors struggle to create and update their software to meet the demands of the marketplace, there will be a shift from platform to platform with the hopes of a better solution, more user control and reduced costs. Now that the marketplace has provided multiple software solutions for law firms to choose from, firms are exploring these new and advanced systems as the firm’s software requirements become more complex and demanding.  As firms begin the process of comparing features and functionality, they will discover things like advanced voice analytics and start to see opportunities where their current software provider cannot deliver these advanced technologies and other vendors can.

So the new normal in a collection law firm is BIGGER is BETTER. As the issuers migrate toward larger firms who can more effectively demonstrate compliance and reduce the issuers costs of vendor management, the larger firms will see strong demand and growth in the foreseeable future. While profit margins have been depleted, the higher volume the bigger firms receive will allow them to meet the work standards of the new marketplace and still recognize an acceptable profit. To not survive but thrive, these firms will have to recognize more economical ways of operating.   Optimizing internal processes can deliver substantial cost savings and therefore increases in profit margins on the work performed.  Every process must be considered and evaluated in order to maximize profits.

Even processes and techniques that may seem outdated or underutilized can deliver significant efficiencies and economies of scale when implemented correctly.  One example of this is the use of transfer agents to maximize agent productivity.  The use of transfer agents is making a comeback with cheap domestic labor changing the old school staffing solution into today’s money saving, productivity generating process. Effectively leveraging transfer agents to get the consumer to an experienced collector can effectively reduce your cost by as much as 50%.

Other proven technologies like web-based payment sites and online negotiating systems are proven technologies to increase liquidations and lowering costs, but consumers demand mobile friendly, responsive websites at a time when over 60% of internet browsing occurs on small screen devices like tablets and cell phones.  Not only do these sites provide 24/7/365 access for consumers to pay, they deliver an uncompromised level of compliance that cannot be matched with human collectors.  Every account that is effectively treated with through this channel is one less account a skilled collector needs to waste valuable time working.

Emerging technologies such as voice analytics systems allow the collection managers to audit hundreds of collector calls and while delivering a higher level of compliance through more effective training and re-training of staff when issues are recognized.

Finally, firms are realizing that they simply can’t keep up with all of the latest compliance concerns and technologies available to stay up to date and relevant in a market that changes by the day.  For that reason, they are turning to consultants, like myself, to help them identify opportunities for growth, technology, efficiency and operational compliance in order to maximize profits and reduce risk.

So what does the future hold for the debt collection industry? More change and consolidation!  It is my projection that most of the current trends will continue over the next 12-36 months with little change in focus. The debt buying industry is the one factor that could bring more change to the industry if it is able to survive these difficult times. The debt buyers, both BIG and SMALL, face substantial challenges to their business model.  Pricing pressures, inventory, purchase restriction on post sale activity and compliance remain the biggest challenges, and the industry will have to make major changes to recoup lost profits from these issues.    The focus for the bigger firms over the next few years will be to take a critical look at every system and process in the organization and identify ways to use technology and expertise in order to deliver the maximum efficiency.  Starting with things like training programs, voice analytics, operational consulting and new and more powerful software systems will are the low hanging fruit should be focused on in the short term.

If you are looking for answers and want to speak with me, just pick up the phone and give me a call.  The first call is FREE 904-687-1687 Phillip W. Duff | CEO Lighthouse Consulting.