Corporate accounts remain backbone for debt collectors
Consumers' voracious appetite for credit and general economic growth are stoking revenue streams for debt collectors, with some executives reporting more than 50% growth year on year.
But the main growth engine for the debt-collection business is corporate accounts, said executives at debt-collection agencies. With sales and distribution strategies worked out, firms are now focusing on tightening the belt on receivables, and that spells continued business opportunities in the debt-collection sector, executives said.
"The growth is still more than 50% each year in revenue," said Katarzyna Kompowska, director of debt-collection firm Intercredit Warszawa, which has been operating in Poland for the past nine years and deals primarily with corporate debt collection. Another reason behind the growth has been an increased effort by debt collectors to market their services, Kompowska said.
"More and more stuff is being purchased in Poland on credit," said Tomasz Gorczynski, key account manager for Intrum Justitia, one of several debt-collection companies that has made its way onto the Polish market during the past two years. (See The List, page 15)
While much of debt collection in Poland concerns corporate accounts, credits taken by individuals are also on the rise, which will create greater future potential for the sector. By the end of 1999, the number of consumer credits grew by 51% from 1998 to more than zl. 36.1 billion ($8.6 billion). And by the end of September 1999, approximately 11.8% of all credits in Poland were irregular. In 1999, Creditreform saw an increase in the number of clients to about 1,000, approximately 30% higher than in 1998.
One sector with many debtors are cellular phone providers. "Telecoms is one of the more difficult ones," said Gorczynski, because people are not borrowing any sort of money or taking credit. They can simply receive a mobile phone and start speaking, easily running up bills of anywhere from the equivalent of $200-$1,000, he said.
"Some people are not aware that they are going to spend a lot of money for it," Gorczynski said. Although he acknowledged that his company worked for a cellular provider, he declined to say which one.
Although debt collection may be gaining more clients and acceptance, the sector still has many hurdles to overcome especially with regard to image. Press reports of debt collectors using violence to collect payments continue to plague legitimate firms, executives said. "There are many misunderstandings concerning this business," Kompowska said. "Normally there are some rules concerning debt collection."
Intercredit is part of the European Collectors Association (ECA) as well as the Federation of European Business Information Services (FEBIS). Both institutions stipulate strict guidelines on debt collection. Currently, debt-collection firms are not licensed, but that could change soon as the country prepares for European Union (EU) membership, executives said.
"It's not excluded," said Karol Wypler, board president for Creditreform. He also noted that the majority of EU member states also requires licenses for debt collection.
Licensing debt collectors would help cleanup the market because it would lessen the chance of licensing companies connected with organized crime, said Zbigniew Turek, vice president of the board at Creditreform. In Germany, debt collectors must pass a special exam to obtain a license.
In addition to image, the sector also faces an obstacle to development in the Data Protection Law. The law stipulates that information about a consumer can only be disseminated after written consent of the consumer.
"The law protects you as a bad guy," Gorczynski said.
Maintaining credit histories through databanks is one way debt collectors encourage debtors to pay up their accounts. Although such information is restricted on the individual consumer level, no permission is required to release information about companies. This is one way companies can collect on their outstanding debts, Turek said. A bad payment record results in poor credit ratings and reduces the possibility of obtaining future credits, he said.
The range of services that debt-collection companies provide can range from simple reminders to legal proceedings. But most of the time, debt issues are solved through negotiations, with collection agencies acting as third parties.
"It's much more effective, faster and less expensive to reach an out-of-court agreement," Kompowska said.
In some cases, however, debt collection companies will buy the debt from a debtor and then deal with the debt itself. But Kompowska doesn't agree with such an approach.
"The real debt-collection company is not providing this sort of service," Kompowska said, noting that a debt-collection company's role is to help receive payment on debts and not to provide financial services.
Most revenue in Poland for debt-collection companies comes from percentages of success fees. But Kompowska said that separate administrative fees could also be levied.
Although she could not state specifically what company profit was in 1999, she noted that Intercredit's revenue for 1998 came to zl. 9 million ($2.5 million), an increase of more than 20% from 1997. Kompowska estimated the debt-collection market to be worth a minimum zl. 50 million ($11.9 million).
This estimate is basically for cash collections and does not include barter agreements, typical for cash-strapped sectors. In the Slask region, for example, local debt-collection companies in many cases will try to come to an agreement via a barter or exchange of services.
"It does not always have to be money," Wypler said. For example, if a construction company does not have money to pay back a debt, it may offer some construction or repair work instead of money.
