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Selling Debt vs. Placing with Collection Agencies; 4 Reasons Creditors Should Consider Selling Debt

Creditors are often faced with a tough decision regarding their charged-off receivables. Once they have exhausted their internal options for enticing a customer to pay, they can either place the account with a professional collection agency or sell the debt to a qualified investor. Each option comes with risks and rewards, and each creditor has to decide which option is best for their business and their situation. Fortunately, Plaza Services, LLC has offered some advice that may help you make your decision.  

In many cases, selling accounts provides a better option for small and mid-sized creditors. Below are 4 reasons creditors should strongly consider selling their charged-off receivables. 

1. Generate Immediate Cash Flow

Selling non-performing accounts is a reliable solution that generates immediate cash flow for the creditor. Instead of trapping working capital in accounts receivable, selling accounts provides immediate funds for otherwise distressed or dormant assets. This can be advantageous for companies with insufficient reserves and those experiencing a period of rapid growth. By converting accounts receivables into cash, sellers can fuel growth opportunities, make investments in staff or technology, strengthen infrastructure, or cover costs of short term liabilities.

2. Reduce Risks Associated with Debt Collection 

Creditors that use collection agencies and law firms to collect their outstanding accounts are responsible for overseeing those vendors. Vendor management procedures and other policies are needed to optimize the use of third-party debt collection service providers and to protect against risks associated with the debt collection process. By selling accounts to a qualified investor, creditors can receive immediate cash flow and reduce the risks associated with debt collection. Qualified receivables investors should have established, service provider management in place as well as experience specific to collecting past due debts. 

3. Preserve Consumer Relationships

When an account falls into delinquency, the creditor must rely on debt collectors to recover monies owed. However, by selling distressed accounts, the original creditor is no longer responsible for collecting on unpaid funds nor accountable for contacting the consumer, therefore, separating the relationship between the creditor and the debt collection process. When the consumer recovers financially, creditors can benefit from the increased opportunity for future lending relationships with the same consumer.

4. Predictability of Cash Flow

Delinquent and charged-off accounts receivables are difficult to predict. The cash flow generated from these distressed accounts through the debt collection process is difficult to forecast with accuracy. By selling distressed accounts at a pre-defined moment in their lifecycle, creditors are able to more accurately predict the timing of the cash flow they will receive from otherwise unpredictable assets and run their business more effectively.

About Plaza Services, LLC

Plaza Services, LLC is a nationally licensed, professional receivables management firm located in Atlanta, GA. We are a Certified Receivables Business (CRB) by Receivables Management Association International and specialize in the acquisition and servicing of consumer and commercial portfolios. We deliver quick portfolio evaluations, seamless transaction execution, and clear accountability after the sale.