As many lenders reevaluate their portfolios, Kimberly Fumega Yeo shares three options equipment leasing and finance companies can consider for portfolio runoff.
As 2024 begins, we continue to see large amounts of change in the equipment finance industry. As you adjust your priorities, you may be facing choices about what to do with your existing portfolios.
If any of the above apply to your business, it is important to assess your options so you can move forward in a successful way.
There are three roads to consider. Do you sell off your portfolio? Do you keep it in-house and let the contracts reach maturity? Or do you seek out a company to manage your portfolios through runoff. Let’s explore each of them.
Selling Your Portfolio
When you sell a portfolio outright, your team is relieved of day-to-day management tasks of billing, collection, customer service and IT maintenance, but you may not be maximizing the value of your book. Further, any potential to realize some of your end-of-life profit may no longer be available to you. And your relationship with your customer is eliminated.
An important consideration is the time and effort you will invest to seek out possible buyers, analyze the potential accounting and tax implications and complete due diligence to ensure the deal is structured in the most effective and desirable way.
Keep the Portfolio In-House
You can continue to service the portfolio in-house to maximize the collection of rent payments and end-of-life revenue streams. However, you will need to evaluate if this approach is cost effective over the remaining life of the portfolio. Operational expenses in labor and systems will continue. As the portfolio shrinks there will be diminishing economies of scale to your employees and systems costs.
Also, winding down the portfolio with internal resources can detract focus from new business initiatives.
Choose a Portfolio Runoff Partner
You could also consider partnering with a business process outsourcing (BPO) company to run down the portfolio for you and with you. This could provide you with several advantages:
Finding the right BPO partner is critical and there are many things to consider when making your selection. Consider this as a check list of what to look for.
Trustworthy, Competent and Skilled:
Collections and Customer Service:
Systems, Security and Compliance:
The BPO you select must have resources that will maintain your relationship with your customer by providing the same comprehensive service they received before. The partnership should be an expansion of your team with a commitment to your success.
There are many reasons why a company may consider portfolio runoff. If you are in a position where you need to weigh your options of how to handle your existing portfolio, evaluate all of your options to determine which path is best for you.