Today's business owners and collection managers now have an additional option after
internal collection efforts and placement to agencies or attorneys have failed to recover
the monies rightfully due to them. A new source of recovery of your bad debt is now
available. For some, it means receiving "free money." For others, it means
improving cash flow or meeting short-term or year-end goals. Whatever the reason , the
selling of charged-off accounts is fast becoming a useful and effective recovery tool.
The first reported sale of charged-off receivables occurred in 1983. Major banks and
financial lending institutions quickly followed suit by selling their charged off accounts
previously placed with several collection agencies. The Resolution Trust Corporation
encouraged the trend, conducting eight national loan auctions in the 1990's. Now, other
industries are also selling their charged-off accounts to improve their collection and
recovery numbers. Among others, telecommunication companies, retailers, distributors,
utilities and even medical service providers are now selling their bad debt.
Estimates for total sales of charged-off accounts in 1998 are more than $7 billion and
increasing every year. It is clear that selling charged-off accounts is becoming an
accepted practice and an important tool for managing collection efforts and improving
recovery rates. Sophisticated creditors recognize that utilization of this new recovery
tool will certainly improve its bottom-line performance and is a necessity as competitors
begin to participate in the marketplace.