Just because a recession assisted in putting more consumers in debt doesn't necessarily mean the debt collections industry is booming. Just like other industries, the collections industry has been hit pretty hard, too.
Prior to the recession, the third party debt collection industry had about 155,000 people working in it. That number dropped to around 148,000 in 2010. The accounts receivable market also took a hit with a nearly five percent drop in employment from before the recession to 2010.
This drop might surprise the general public when there is so much debt out there to collect on. But working against the industry is the need to reduce commission rates these companies charge to clients, like banks and creditor clients. For instance, in 2005, about three years before the start of the recession, third party collection agencies had commission rates of nearly 24 percent for their collection solutions. But by 2010, that rate dropped to just below 19 percent. The industry saw around $12 billion in commissions in 2005, but only $10.3 billion in 2010.
Looking at the income margins for debt collection solutions doesn't paint a brighter picture. The average after-tax net income margins rose steadily up to 2008 when agencies were taking in an average of 6.7 percent margins. But by 2010, that percent had dropped to just over five percent. The earnings before interest, taxes, depreciation and amortization (EBITDA) also dropped over that same period, from 11.8 to 8.2.
To compensate for these loses, companies that offer collection solutions had to cut back on the number of employees that they had on the payroll. Some industry experts believe that the industry hit its low point in 2010 and that 2012 should show increasingly positive numbers, once they're available.
There are fewer collectors on the payroll today, but there is plenty of work out there for them. The Federal Reserve said in one of its reports that the number of charge-offs rose more dramatically than any other time in history from 2008 to 2010. Companies specializing in debt collection sought out more innovative solutions to establish partnerships while maintaining their edge on technology that helps them deliver professional services that stay in compliance with federal, state and local rules and regulations.
While companies like Omega RMS, which provides debt collection solutions for clients, are thriving today, it's not due to an influx of bad debt that needs to be collected. It's because they are able to offer flexible solutions that fit their clients' needs.