ELFA Survey Looks at Collections Issues
Collections Manager’s Survey: Delinquencies Will Edge Up, But We Can Handle It!
By Brett Boehm
For the eighth year in a row, the much anticipated Collection Manager’s Survey was presented and well received at ELFA’s 2017 Credit and Collections Management Conference, June 4-6 in Baltimore, Maryland. The survey was started in 2010 to bring collection professionals together to discuss important collection issues. Each year the survey results are presented at the conference in an open forum to allow attendees to discuss the findings. Due to the success of the survey, it has continued to be a cornerstone of the collections segment of the conference for several years.
This year, the moderators who presented the survey findings were Brett Boehm of TBF Financial, LLC; Robert Fagan of Eastern Funding; Dan Goderis of GreatAmerica Financial Services; and Jim St. Clair of DLL. In addition, Barry Ripes of PayNet opened the forum with a slide show of the current trends in the equipment finance industry pertaining to delinquencies. These industry experts compiled and analyzed the data with the assistance of Bill Choi of ELFA.
As in years past, participation in the survey was excellent, with a total of 74 member companies supplying pertinent data. The data collected was grouped by company, ticket size and organization type, while capturing information pertaining to aging of receivables, productivity measures, resources assigned to collection activities, technological trends and outsourcing strategies.
What we learned from PayNet
According to the Thomson Reuters/PayNet Small Business Lending Index, 31-90 day delinquencies for 2017 are still low. In fact, it shows a slight overall increase over the years since 2013, but is still well below the best of times in 2006. Construction and transportation have higher than average default rates trending towards 4-5%, while retail, general and health care have remained stagnant. Agriculture has shown a relative increase in delinquencies as well. When reviewed by state, the South shows higher risk, but it is still hovering around 2% in most states, with Texas and Louisiana under 2.75%.
Areas of growth are entertainment, public administration, administration and construction. Entertainment is leading that pack at over 3.2 times construction. Areas that are lagging are transportation, healthcare, mining and agriculture.
What is the bottom line?
PayNet’s forecast shows that while 2016 had an average default rate of 1.8%, 2017 anticipates a 2.1% rate and the same for 2018. Industries have fluctuation, but the overall truth is that delinquencies are still well below historical averages of 3% and the recession of 2009, which had a 6.3% default rate. Pretty darn good!
What we learned from the Collection Manager’s Survey
The survey participants reported that delinquencies are up, but concern about them is down. Banks continue to keep their balance sheets intact with captives demonstrating the highest default rate and independents somewhere in between. Middle and small ticket showed a 3.6% rate at 31-90 days, but a major recovery by 90 days. Micro ticket showed a 4.8% rate at 31-90 with not much recovery at 90 days.
Over the years, concerns about a rise in delinquencies and charge-offs has remained high. Now, even though those categories are expected to increase, staff aren’t as concerned. Departments have learned to manage collection departments better and utilize technology to their advantage. Survey respondents also anticipate that the economy will improve, which allows those who go into default a better opportunity to recover before charge-off.
Technology was a big talking point in the survey as well. While last year the focus was on the use of texting, this year it was more about automation. For example, pushing ACH/EFT payments instead of mailing checks. While some questioned if this new payment process would affect the overall late fee income, others said that the NSFs balanced out what was lost. Also, there were many other areas where the collection departments are looking to generate money, like fees from documentation, insurance, modifications, legal and property tax.
When it comes to outsourcing collection aspects, many utilize third parties. About 53% use collection agencies, believing that up to secondary placement is effective. There was some discussion about liability in using third parties, but the agencies are continually audited to alleviate some of those concerns. A suggestion regarding selling these accounts was discussed as well, which eliminates the issue of liability. About half of the respondents use door knockers and three-quarters use remarketers and have a dedicated internal asset group.
In conclusion, data and personal beliefs indicate that delinquencies will increase, but will remain well below historical averages. With an increase in accounts to collect, the collection departments will remain intact, adding little to no staff because technology, other efficiencies and third parties will assist in maintaining the status quo.
Brett Boehm is Principal/Director of Business Development at TBF Financial and a member of the ELFA Credit & Collections Planning Committee.
Save the date: Next year’s Credit and Collections Management Conference will be held June 4-6, 2018, at the Omni Royal Orleans Hotel in New Orleans.