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Commercial Debt Collection Market Faring Better than Consumer, But Worst May Still be Ahead

March 14th, 2009

Commercial Debt Collection Market Faring Better than Consumer, But Worst May Still be Ahead

The worsening economy is taking its toll on commercial collections. Collectors are seeing trends that both help and hurt the industry.
by LaTrina Antoine
insideARM staff
The commercial debt collection sector is experiencing the same “good news, bad news” paradigm as the consumer collections market in the current economic environment: the industry is getting more accounts, but those accounts are becoming harder to collect.

As businesses across the country fall behind and default on loans, more companies are turning to third party collection agencies as an aid to recovering past due debt.

The Commercial Collection Agency Association (CCAA), said recently that commercial accounts placed for collections rose to a record $13.5 billion for the year ended Sept. 30, 2008, besting the previous record of $13.15 billion in the same period ended in 2002. For all of calendar year 2008, $14.3 billion in business to business accounts were placed for collections, up 23.2 percent from 2007.

“It’s not too dissimilar to what I see and hear on the consumer side, except that the consumer side and the debt buying side are more problematic in terms of larger declines in the collect-ability of the accounts,” said Executive Director of CCAA Emil Hartleb.

But declines in collectability are being realized in the commercial collections space. According to a survey conducted by CCAA, 80 percent of its members surveyed indicated that they have experienced a decline in the collectability of accounts placed with them for collection. The median decline in collectability reported was approximately 5.6 percent. And the trend is expected to continue, with 90 percent anticipating declines in collect-ability through the first half of 2009.

According to information gathered by business credit bureau Cortera, late payments on commercial loans have increased 30 percent in the last 12 months.

“There are distinct similarities between delinquent accounts and the unemployment rate,” said Cortera President and Chief Executive Officer Jim Swift. Cortera’s data shows a strong correlation between the unemployment rate of a state and the percentage of commercial loans past due in that state….read more on InsideARM