Let’s face it, no one likes to hear from a collection agency. The fact is, however, third-party debt collectors have helped keep some businesses healthy over the last several years by providing them a steady revenue stream.
At the same time, many other debt collectors have gained a reputation for unscrupulous behavior, so much so that the federal government is proposing rules to bring the industry under its regulatory role.
The issue is coming to the fore as another byproduct of the Great Recession, as many companies see uncollected receivables as essential elements of their cash flow. Across the nation in 2010, $55 billion was recovered on both consumer and business-to-business debt, according to a recent report from Ernst and Young that was paid for by ACA International, formerly the American Collectors Association.
Of the $55 billion collection agencies earned nationwide, $10.4 billion of the amount was commission for collection efforts, with $44.6 billion returned to creditors. The five states with the highest total debt collected were Texas ($5.3 billion), New York ($5.3 billion), California ($4.4 billion), Florida ($2.8 billion) and Illinois ($2.7 billion).
“I thought the amount that was put back into the economy was pretty telling,” said New England Collectors Association President David A. Sands. Sands represents about 80 members in the six New England states, only a handful of which are in Rhode Island. “The study was good to show that given a fragile economy, we are key to small businesses that are owed money; otherwise there would be no accountability. People would ignore their bills, and there would be a bigger problem.”
The study reports that the collection industry in Rhode Island directly employs 49 people and generates a payroll of $2 million. It also is indirectly responsible for about 100 jobs and $3 million in payroll. The amount of money collected and returned to the state’s economy was estimated to be $27.4 million, with about $400,000 going to state and local taxes.
Some collection agencies specialize in retail recovery, such as credit cards, while others focus on business-to-business commercial defaults. The difference between the two kinds of collection is significant, according to Steven V. Frankel, president of Ashton & Weinberg in Johnston. He previously owned a retail agency, but after selling it to a large national retail collector in 2005, he founded his new company, which has a business-to-business focus. Ninety-five percent of his clients are supply companies that provide goods and services but have not been paid. Ashton & Weinberg has five employees and is active throughout the world. Since then, he said, “we’ve grown every year since 2006, anywhere between 8 to 12 percent annually.”