Debt collectors contemplating 'give and take' approach

Wednesday, October 20, 2010

Some 200 debt collectors last week discussed incentives aimed at boosting compliance in a sector plagued by a record $20 billion in bad debts.

These collectors who represent financial institutions, utilities, hospitals and large furniture stores were concerned that a number of recession-affected debtors were unable to make payment under original terms.

"A number of persons have lost their job — a large number," stated Christopher Johnson co-founder of Jamaica Collection & Recovery Services Limited (JCRSL) which the conference convener. JCRSL is a debt collection company with over 10 years experience with headquarters in Kingston but collects internationally.

Instead of penalising debtors they are refinancing or negotiationg loans at lower rates in order to salvage some of the debt. The professionals met at the annual Credit & Collection Conference 2010 convened by Jamaica Collection & Recovery Services Limited (JCRSL) at the Knutsford Court Hotel in Kingston.

The conference theme was 'Increasing the Collection of Your Debts Through the use of Platinum Negotiations Techniques'.

"There is a difference between negotiation and persuading," Johnson told the Observer. "When you persuade you convince people to pay, it is cheaper. But negotiation is when you give something and you take something. There is a major difference."

Negotiating has become more common in the industry he added: "We recognise that we are getting more accounts".

Nonperforming loans (NPLs) — loans unserviced for three months and over — across the financial sector jumped 40.7 per cent over 12 months to $20.4 billion to June 2010 which surpasses the investments in failed FX trading firm Olint, which was partially blamed for the rise. The level of bad debt is not affecting the stability of the financial sector as it accounts for some six per cent of total loans up from 4.1 per cent in June 2009 and 2.5 per cent in 2008.

"In these difficult times bad debt presents a serious concern that could lead to the failure of successful companies. By employing effective persuasion and negotiating techniques, your business could increase its profit and cash flow, while maximising recovery on past-due accounts receivables, and most importantly, preserving relationships with customers," stated the programme.

NPLs accelerated in the June quarter of 2008 when the local recession reduced economic activity and employment. NPLs were also affected according to some analysts including Dennis Chung by the fallout of the unregulated schemes including Olint as investments were secured via loans. Olint liquidator, John Connolly deemed Olint led by trader David Smith a Ponzi scheme purporting to make high returns from foreign currency trading. He discovered that 6,000 people had invested US$220 million ($19.2 billion) in the operation; which is equal to the NPLs to date.

Interestingly, provisions for loan losses made to cover these NPLs have fallen year-on-year from 94 per cent in June 2008 to 70 per cent as at June 2010, according to the latest prudential indicators released by the BOJ.

The financial sector has been affected by the ongoing recession in Jamaica which was triggered by global economic fallout two years ago.

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Debt collectors contemplating 'give and take' approach