Debt collection is thriving - thanks to professionals

Singapore

DEBT collection in Singapore is thriving as a business - and it's not just due to a lousy economy. Companies are increasingly outsourcing debt collection to professionals, who are more efficient at it.

The amount of debt collected by credit and debt-collecting firm Singapore Commercial Credit Bureau (SCCB) hit a six-year high in 2016.

Debt handled by Amsterdam-based Atradius Collections has been increasing steadily over the past few years - and its global marketing manager Douglas Voeten said it wasn't all due to the market.

"This also has to do with an increased effort in the market by our team in Singapore," he said.

Forget the image of a thuggish-looking debt collector and his strong-arm tactics in recovering debt in the middle of the night. Today he looks more like a bank executive who works 9 to 5, working with data to profile debtors as part of the debt recovery process.

A particularly effective tool in getting debtors to pay up these days is blacklisting. Debtors, especially those doing business, don't like to be put on a black list, according to Frankie Fan, SCCB chief financial officer & managing director, collection services. One reason is they will be shunned by investors and customers.

"There has also been a common misperception that the use of verbal threats or physical intimidation are the only means of pressuring the debtor into paying up. This has to some extent given debt collection agencies a negative reputation," he said.

The SCCB uses a profiling approach to help debt collectors form a complete picture of the debtor in question, he said.

This involves performing comprehensive background checks and skip tracing, understanding his or her networks, credit history, financial standing and any other facts which might be helpful in recovering the debts.

"The use of such methods is very much linked to our bureau's capabilities such as blacklisting and leveraging the information which we have," said Mr Fan.

"The blacklisting of debtors on SCCB is in particular a powerful deterrent and tool in preventing payment defaults and getting the debtors to pay up as it would potentially be detrimental to the reputation of the company."

When investors know a company has outstanding debts, it is very likely they will not have any dealings with it.

Local claim placements or debts reached a six-year peak last year as the payment performance of local firms deteriorate, said Matthias Chen, SCCB's market-communication and product manager. Debts rose 8.76 per cent from S$75.26 million in 2015 to S$81.85 million in 2016.

SCCB's top clients by value are from the services, construction, manufacturing and wholesale sectors.

As for Atradius Collections, 50 per cent of the cases it deals with are for customers from the business services and electronics industries. It declined to offer the value of debts it collected in Singapore. Worldwide, its annual collection is around 865 million euros (S$1.4 billion).

SCCB's Mr Chen projected that the value of his firm's overall claim placements is likely to rise to about S$85 million in 2017.

Payment performance has declined over the past five years, he said. Prompt payments slipped from 45.69 per cent in 2012 to 43.77 per cent in 2016 while slow payments jumped significantly from 33.05 per cent in 2012 to 44.71 per cent in 2016.

"Over the past six years, we have also noted a sustained decrease in the average value of outstanding debts for every claim placement made," Mr Chen said.

He said this is an indication that firms are outsourcing their debt collections early, before the amount of outstanding debt snowballs to tens of thousands of dollars.

The average value of claim placements dropped by half from about S$3,600 in 2011 to S$1,800 in 2016. The expected average value of claim placement will fall further to about S$1,750 in 2017, Mr Chen predicted.

"The main reason companies are outsourcing their debt collection early is that it is more cost-efficient and effective to do so," he said. "Doing it early also helps in tracing and tracking defaulters."

The companies can then focus on their core business activities instead of wasting substantial resources and time to collect the debts in-house.

"This would ultimately impact the company's bottomline," Mr Chen said.

He said most debtors often take their relationship with their creditors for granted. "By outsourcing earlier to debt collection agencies, it sends an important signal to the debtor of the severity of the case which could potentially be escalated to legal actions being taken against them."