Value Added: Advising The Debt Collectors
Here's Tom Heath's latest column on Washington's business community:
I got to know Marvin Kaulkin smoking an occasional cigar together at Bethesda Tobacco, a popular spot in lower Montgomery County.
Bethesda Tobacco tends to draw more than its share of businessmen and entrepreneurs
from the Washington scene, and so it's a good place to schmooze. Marvin has been bugging me to write about his firm, Rockville-based Kaulkin Ginsberg, as long as I can remember.
Kaulkin Ginsberg has 25 employees and advises collection agencies on how to improve their businesses. Their clients include Sallie Mae, TRW and GE Capital, according to the Kaulkin Ginsberg Web site.
Kaulkin Ginsberg does other things too. It advises collection firms on how to grow, merge and improve their business. The company even has a media arm that writes about debt recovery.
With the economy tanking and banks freezing up, I called Kaulkin Ginsberg and chatted with president Mike Ginsberg (Marvin likely was enjoying a smoke nearby) about what he is seeing in the marketplace and whether Washington region consumers are having a difficult time paying their bills.
Ginsberg said that although the current credit crisis and subprime mortgage debacle is creating pain throughout the U.S. and the rest of the world, it's creating opportunities as well. Asset recovery is Kaulkin Ginsberg's specialty. In other words, debt collection.
"With the changes on Wall Street, with the bank bailout and the U.S. government taking ownership rolls in the nine largest banks, it's inevitably going to mean a lot of business to us," he said. "There's going to be increased recovery efforts, which will keep Kaulkin Ginsberg busy."
"The good news about the Washington, D.C. area is the unemployment rate here is dramatically lower than in other parts of the country," said Ginsberg. So most people are paying their bills - so far.
"My sense here locally is that unlike other areas, people are staying in their houses and we are seeing less foreclosures locally."
We haven't been hit like other parts of the country such as Michigan, Florida, Nevada and California, all of whom are struggling under pullbacks in manufacturing or housing, he said.
"But if the recession continues to grow, it's going to start negatively impacting the Washington community."
Ginsberg said that currently companies aren't waiting 90 days to hire a collection agency. Instead, many companies - whether it be a credit card issuer or a carpet store - are going after unpaid bills after only 60 days, and sometimes sooner. In a healthy economy, companies might not try very hard to collect those bills because it can be costly. Or they might write the un-collectible receivables off their books completely.
But right now, with cash tight and business slowing down, companies are going after the bad debts as a way to raise needed cash. They are going after the receivables even it if means getting just 10 cents on the dollar.
"We tell them they have to be fluid," Ginsberg said. "They need to recognize these are challenging times. You have to communicate earlier with a debtor and not be combative."
Ginsberg said he is going to give the same advice to the agencies and others who will be collecting the hundreds of billions in unpaid debt left in the wake of the economic meltdown.
"Like all significant economic change, it creates opportunities for those who have the stomach to deal with it."
Ginsberg gave me a little primer on the timeliness of credit collection, most of which is centered in the credit card industry but also can include health care and other companies.
"Your readers in general are individual consumers and they are all potential debtors," he said. "Every one of them has outstanding bills. Some of those bills are delinquent. Some are highly delinquent."
A delinquent bill runs from zero to 60 days. After that, it's "highly delinquent."
Ginsberg stated the obvious. That when times are tough, people are slower in paying their bills. And in our current society, where credit cards pay for most of life's necessities, from gas to groceries, from food to school supplies, people are cutting it pretty close on the credit front.
"They are razor thin as to how they cover their expenses with income," said Ginsberg. "They are paying minimum balances."
The credit card balances are getting bigger and consumers are pushing them farther into the future, he said.
In a healthy economy, most people tend to pay their bills pretty quickly. In a downturn, they find excuses. Result: the collection industry, whose revenue is based on how many delinquent bills they can collect, suffers in a recession because it's simply harder to collect the bills.
"People tend to think the collections industry is recession-proof," Ginsberg said. "The only things that are recession-proof are death and taxes. Debt collection is recession-resistant and tends to lag behind the major indicators. It goes into recession later and comes out quicker."
On the other hand, "the collection industry is a very good barometer of economic conditions when we come out of the recession because you can tell when people are working, paying their bills and spending again."
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