Collecting debts that have been in arrears for some time is complex and challenging. Also, when debts overstay, they become expensive to collect. Luckily, you can sell the debt and place the mandate of collecting it in the hands of a debt collection company. The consumer credit act allows a creditor to outsource the debt collection task to a third party. It is a common practice that applies to debts like loans, credit cards, overdraft catalogs and hires purchase dealings.
Debt collection agencies specialize in finding and chasing people who do not pay their debts on time. Therefore, creditors that do not have the time to chase such debts or those in need of immediate cash can sell the debt asset to a third party.
Indeed, debt selling is becoming popular due to its many advantages. According to debt sellers, it is one of the methods businesses raise working capital. Besides, it helps them generate more sales and improve business profitability. But to succeed in debt selling, you need to develop a strategy that works for your business. Read on to see the 2023 strategies to help companies to profit most from debt selling.
1. Choosing The Right Buyer
The ultimate goal of selling debt is to raise money and increase your working capital. So the best strategy is to get immediate cash from the sale. But this depends on the debt buyer you are working with. Here are the debt buyers you should consider.
Passive debt buyers
These are professional investors whose job is to buy debts. They buy debt and hire experienced debt collectors to optimize the collections. Such investors specialize in buying unsecured accounts.
Collection agencies
They are organizations that buy debts from clients with a serviced debt portfolio.
Law Firms
Law firms provide debt litigation services. Therefore, they invest in debts within the state where they operate. So other than serving their clients, they use their experience and resources to collect debts.
Family Offices
These are similar to debt buyers who buy performing debts and use debt collection agencies to recover the accounts. The offices buy both unsecured and secured debts.
2. Sell Non-Performing Accounts
Although you can sell any debt, the best strategy is to sell non-performing accounts. But you will be expected to give a generous discount to the buyer. Typically, you will sell a performing debt almost at par value.
3. Know the Reason for Selling the Debt
Consider selling debt to access the cash locked in such assets. Typically, it is difficult to recover money from a debtor if the debt is old. So by selling it, you stand a chance of freeing and availing the cash for business use.
In other cases, you may sell an account to securitize a loan portfolio. This is the reason why debt selling is becoming popular. Thus, when you monetize a debt account, it avails funds for more production or reinvestment.
You may also choose to sell a debt when it becomes expensive to collect or require a significant operational effort. Also, you may need to hire salaried personnel to manage such accounts. Consequently, you may incur fees and expenses that don’t add value to your business. Thus, selling such debts allows you to focus on the core of your business. It will enable you to move the company to the next level.
4. Limit The Risks
Although selling debts may appear riskless, there are plenty of inherent risks. The seller is liable for the actions of debt buyers. Therefore, if the law is not adhered to during the collection process, it can be a very costly exercise. To avoid such, ensure the sale is legal, and the necessary documents are signed and transferred to the buyer. Doing so moves the risk of working with the debtor to the buyer.
Final thoughts
To succeed in debt selling in 2023, you must set your goals right and choose the correct buyer. Of course, you should have reasons for selling the debt based on your experience. Also, determine the type of debts you will sell and ensure you operate within the stipulated legal framework.
