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.

Mike Ginsberg, president of Kaulkin Ginsberg, a consultancy for collection agencies.

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."

By Dan Beyers  |  October 14, 2008; 7:00 PM ET  | Category:  Value Added
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Please email us to report offensive comments.

I just settled my $120,000 of credit card debt for just $24,980.

I did it all by myself.

You can too. It was really easy and quite painless in the end.

I know that people searching this site would be interested to read my story:

Thanks so much,
Scott Stiller

Posted by: Scott Stiller | October 15, 2008 1:39 PM

Certain businesses are counter-cyclical. Some businesses can even prosper in tough times.

Posted by: Bruce W | October 15, 2008 4:48 PM

Debt Collection is a messy but vital function for our economy. What an interesting article this was.

I look at it like this - With the recent meltdown of the U.S (and world) economy, the necessity for collecting outstanding debt and its impact on all of us was made patently apparent. The failure of the financial system was the direct result of people not paying their mortgage bills - it impacts all of us if enough people stop paying as we've now found out.

Whether or not those now having trouble paying ran up huge mortgage bills knowingly or unwittingly and no matter whose fault it was, the mass, societal failure to pay mortgage (and now credit card and other) bills has caused a near collapse of our entire economy and impacted the entire world. Our economic system relies upon people to pay their bills and, if not, needs debt collectors to encourage them to do so.

Debt collectors are a vital part of our economy and by collecting unpaid bills and taxes each year do a service that may not be the most highly looked upon profession but is vital for the rest of us as long as they do it ethically, morally and within legal limits. Thanks for the well written and interesting article.

Posted by: Anonymous | October 15, 2008 5:25 PM

Companies and government entities need to focus more intently on their financial performance during tough economic times, and increased debt collection activity is one way to achieve this objective.

I find it ironic that politicians and the media have increasingly pointed their fingers at the debt collection industry during the presidential campaign, claiming that it is filled with criminals and bullies. However, the amount of outsourcing from companies and government entities to collection agencies has never been higher.

When are we going to begin seeing news about how collection agencies are "helping" their clients?

Posted by: russelme | October 15, 2008 6:09 PM

From a legal perspective, I see debt collectors serving an increasingly important role in keeping consumers in our society in compliance with their financial obligations. With the ailing economy coupled with the revised Bankruptcy Code making it harder for consumers to receive federal statutory protection, asset recovery work is increasing. The need for quality business providers in this industry such as Kaulkin Ginsberg, the provider of choice to many debt collectors for the services they offer, is paramount to maintain an efficient, productive system built on integrity.

I applaud your providing a focus on the industry and this firm in particular.

Adam August
Holland & Knight LLP

Posted by: Adam August | October 15, 2008 8:53 PM

Following this blog over the past few months has been a fascinating history of where our economy has been headed. We started with Dan Mudd's now repudiated growth strategy for Fannie Mae, moved on to Carlyle's Bill Conway on the bailout, then got long-term survival advice from FBR founder Russ Ramsey. Last week we learned that Federal Capital Partners was still out raising money and seeking out values, and now this week we have moved to collection agencies and their strategies. Each of the articles - and comments - has been helpful in putting the current situation in context refreshingly in plain straightforward apolitical talk. I expect next week we will move on to a reclaimed merchandise auction house. I think rather than watching the final Presidential debate tonight, I may just put a tape of "Repo Man" in the VCR to get a headstart.

Posted by: Cooper | October 15, 2008 9:44 PM

I am a pharmaceutical sales representative in and around the Washington, DC metropolitan area. As I discuss the current economic climate with my healthcare providers, I am finding it is having a significant impact on their business. Specifically, patients are having greater difficulty paying their co-pays and share of medical bills. Many patients are having to choose between seeing a physician for an illness or paying for their food and gas. Sadly, many are choosing the latter. Additionally, medical insurance companies are taking a noticably longer time period in which to reimburse the health care providers for performing their medical services. Instead of insurance paying their portion within 30-60 days, many are expanding that time frame to 90 to even 180 days. Running a medical practice is very similar to running any other business in that there are payrolls to meet, rent to pay, and utilities which require payment activity. If the current economy continues to flounder, patients will continue to have difficulty choices to make and, if they choose to see a physician, they are not likely to pay their entire financial obligations. If they have difficult choices to make, they are not likely to pay on time. Similarly, if medical insurance companies don't pay their healthcare providers in a timely fashion, cash flow in the offices will diminish and the need to collect from patients will continue to increase. As a result, the collections industry will, I'm certain, become an increasing player. The opportunities will increase and firms like Mr. Ginsberg's will have greater opportunities to play an important role.

Posted by: Chuck | October 19, 2008 9:12 AM

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