Tough Times Emphasize Sound Collections Practices

by Ed Castagna September/October 2008
Moving past 2008 may seem like a good idea given all that has transpired, but judging from the early signs, we may not like what we see in 2009, either. However, modern science has not yet come up with a way to allow us to fast forward through the bad times, so it’s time to look 2009 squarely in the eye.

This year may not be over yet, but it is time for leasing professionals and the businesses they support to look ahead to 2009, and the best way to deal with what might be a tough year is by planning ahead and implementing sound business practices. For leasing professionals, we believe this means giving serious consideration to consolidating your collections practice into a one-stop outsource provider that can simplify and speed up the collections process, while also improving your success rate in settling problem accounts.

At Nassau Asset Management, we use our NasTrac Quarterly Index (NQI), our quarterly review of equipment repossession and liquidation activity, to track trends in the industry. The most recent data we have compiled indicates a mixed bag of news, specifically for the trucking sector.

After seeing an extremely high increase in activity in the trucking sector for the past 12 months, we noted a decline of approximately 28% in trucking repossessions at the mid-point of 2008, as compared to the same point in 2007. However, the overall level of activity is still high.

Fuel prices are still high, well above 2007 figures. The aftermath of the recent spate of hurricanes in the Gulf region is expected to cause a spike in prices, but, conversely, the downturn in global markets may reduce the speculating that has occurred in the oil market, which is also seen as a key factor in boosting prices in recent years. Without the presence of speculators, analysts seem to agree that fuel price hikes will be minimal through the coming months.

Regardless of the current situation, fuel prices have gone up significantly in the past year and this has led to a shift in business practices within the trucking industry. Many owners and operators have moved away from the use of larger trucks with higher horsepower engines (over 450 horsepower) and turning to trucks equipped with lower horsepower engines.

That reverses the trend of the past few years, when the main focus of interest centered on these larger vehicles, which include sleepers and engines with big power. That interest had extended to remarketing, with the secondary market providing a cost-effective way to purchase these high-performance vehicles.

Now, operating costs on these big trucks are up by as much as an additional $80,000 to $100,000 in additional fuel costs per year. Truck owners and operators who can’t cover those operating cost increases in today’s market have been facing tough decisions.

Some truckers have decided it’s no longer profitable to drive a truck. Others choose to reduce horsepower to increase their profit margin or switch from long hauls using a sleeper unit to local runs with a day cab set up.

Sales of the more expensive ($60,000 to $80,000) trucks in our markets reflect this trend, resulting in a market that can best be described as “soft.” Sales in the middle market (units with a value under $60,000), however, are still very robust. This is a logical outgrowth of market trends, and reflects the purchasing strategy by owners and operators, to shift to more energy-efficient models.

It remains to be seen if the recent decline in fuel prices will continue into 2009, level off or even reverse itself, sending prices higher again. The most likely projection calls for increases in prices, but perhaps not at the rate of 2008.

It does seem certain that businesses that rely on trucks will still face operating pressures next year. Those businesses should review their current leasing operations and procedures, especially in regard to collections, as a way to alleviate those pressures.

The goal of these companies should be to apply speed, efficiency and coordination to successfully deal with bad debt assignments. In today’s economy, with a rising number of delinquent accounts, it is vitally important to strike quickly and aggressively to resolve these issues at every possible stage of the collections process.

For those that have an existing collections outsource structure, this is a good time to determine how many unrelated components are being used. Are you using in-house staff, multiple collections agencies, multiple repossession firms, multiple outside attorneys and multiple deficiency balance collection agencies? Does this seem like the most efficient structure you can use? Think of it this way: estimate the volume of communication that is necessary to manage 100 accounts across all of these unrelated outsource partners during the course of a year.

One attempt to contact each of these partners adds up to hundreds of phone calls, call backs and e-mails. You then must acknowledge that one successful contact call never solves a collection problem. Think of the actual volume of correspondence it would take to resolve collections issues among all parties for these 100 accounts. Finally, think about how this would lengthen the collections and recovery process.

In today’s challenging business environment, this multiple-partner structure is too complex, laborious and resource-intensive to meet the needs of most companies. We have encouraged our customers to adopt a more streamlined, “one-stop shop” approach to collections.

We believe this approach enables our customers to accomplish more in less time. In this structure, you begin the process with demand letters being sent, collection calls made, site visits undertaken in order to collect, and repossessions conducted if necessary and cost effective. Soon after repossession, assets are remarketed, establishing a deficiency balance, which we immediately commence collecting. All relevant data is entered once and then utilized by all internal components within Nassau’s collections structure.

The end result goes beyond just increased efficiency and streamlined communication. Today’s higher volume of delinquencies requires speed and an aggressive posture to be effective in collecting delinquent accounts before resources are totally depleted. Any delay in acting on opportunities that arise in each stage of the collections process will result in reduced recovery. In essence, this multiplies your headcount to include ours as soon as you deploy this type of collections service. This means you can apply “capacity on demand,” increasing as needed and then returning to normal levels at the appropriate time. It also provides businesses with the necessary cushion if they face the undesirable but sometimes unavoidable necessity to reduce staff.

It is crucial to consider all possible combinations of solutions to successfully resolve a delinquent account. To effectively utilize all of these combinations takes a resourceful yet unrelenting, all-encompassing collections process coupled with repossession and remarketing services. This provides a sustained, efficient and successful approach for companies seeking settlement of problem accounts. From our experience, customers who have turned to this approach make it part of their ongoing effort.

One of the most important benefits customers receive from the single-outsource model is to speed up the process in obtaining an immediate evaluation of the asset and the likely cost of repossession. Customers can determine the most effective method to collect the money found in the asset, through asset sale or collection of deficiency balance. Again, this can best be accomplished by using one recovery service to save time and money.

It’s important to consider the “people factor” when reviewing your options for one-stop recovery partners. These partners should possess management and collectors that have the necessary experience to understand the intricate nuances concerning leasing contracts and the correct approaches needed to succeed.

This is especially important when dealing with accounts with equipment still in place. The outsource partner can often leverage the collection by immediately setting up a repossession/liquidation through its asset group — and then continue collection efforts on the deficiency balance.

Using the one-stop outsource model eliminates the “confusion factor” for a delinquent lessee. By ensuring that lessees work with the same partner throughout the process, this removes one of the most common excuses given (“I didn’t know who to pay”) and speeds up the achievement of a resolution.

While the one-stop outsourcing model has a number of benefits, why are more companies not adopting it? For one thing, it is not possible for a company that wishes to operate as a full-service outsource partner to achieve that status quickly. There are state-by-state registration and licensing requirements to be met, along with insurance burdens to bear in order to present your company as a reputable, professional collections service provider.

Even more importantly, it also requires real-world experience based on years of successful implementation. Simply having a business plan to operate as a one-stop outsourcer won’t cut it; you must be able to prove you’ve done it in the past and have the customer references to back up those claims.

When considering a company that promises to provide a one-stop model, take the time to assess the experience level of the people in that company and review their credentials and references, before making a decision. However, by utilizing a proven, credible one-stop solution provider to assist them with their delinquent accounts, lessors should see improved collectability with decreased expenditure of time and resources. It may also make 2009 look a little better, so we can begin to focus on 2010.

Ed Castagna is a principal with Nassau Asset Management (, based in Westbury, NY, a full-service firm that provides asset recovery, collections, remarketing and appraisal services. He serves as EVP of operations, responsible for managing internal operations and a growing staff while working on behalf of clients. Castagna recently chaired the ELFA’s Service Providers Business Council and was active on its membership committee, as well as the 2004 and 2005 Industry Future Councils of the Equipment Leasing and Finance Foundation.

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