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Key takeaways:
Selling a debt portfolio for a higher price requires a strategic approach, including proper segmentation, accurate valuation, understanding the market conditions, and identifying the right buyers. Packaging the debts in a way that highlights their value, utilizing professional brokerage services, and timing the sale when demand is high can also contribute to achieving a better price.
There is an opinion among lenders that the sale of overdue debts is necessary solely for clearing balance sheets. However, if everything is done correctly, it will also bring a significant economic effect. Below are five tips that can increase the value of the portfolio several times.
In two years, we have held almost 500 auctions. Approximately half of this volume accounted for bank portfolios. A two-year analysis of trading allowed us to identify universal recommendations that increase the value of portfolios by several times. I will tell you about the most important and most effective ones today.
Let’s suppose a lender posted a portfolio on an online platform and the trading date is about a week away. During this time, debt buyers should evaluate the portfolio by uploading its data to their CRM. Of course, the debtor’s personal data is hidden. Each lender, whether it is a bank, credit union, or auto credit company, has its own structure for unloading the masked file, which they consider to be a reference. It often happens that portfolio sellers hide an excessive number of fields. Meanwhile, for a debt buyer who needs to evaluate a portfolio, any additional (even indirect) parameter is extremely important. For example, the age or gender of the debtor, the number of payments for the last twelve months, the availability of extension agreements, etc. All of this cannot be attributed to personal data, but the statistics of debt buyers, primarily collectors, show that. For this reason, buyers would like to receive additional information at the stage of preparation for the auction of the debt. Therefore, it is extremely important for the seller to allocate people to communicate with potential buyers. Their questions are not caused by curiosity, but by a desire to analyze your masked file more accurately. An adequate attitude plus an understanding of how the business of a buyer of your portfolio works, significantly affects the final price.
The second factor that has a significant impact on the price is the completeness of documents and the speed of their transfer. We are talking about both, the masked file itself and media (loan agreements, judgements, etc.). Speed and completeness are the most important factors. This forms an idea of the seller, regardless of the status of your organization.
There are high-tech lenders, where the process of transferring documents takes place on digital media. They transmit the entire volume of documents not on paper, as many banks do, but in electronic form, where there are scanned copies of all media. The term of transfer and completeness of documents, even for the largest sellers, may differ by 10 times. One bank transfers the documents within 90 days, the other within one or two weeks.#nbsp;
If you want the sale price of the portfolio to increase by 20-30%, you need to prepare the documents for the sale in advance. Why are deadlines so important? Because every month of delay reduces the efficiency of working with the portfolio. The absolute majority of debt buyers are not ready to wait a year, especially if the buyers are small companies. They need to start working with the portfolio as soon as possible.
My advice is simple: If the seller has all the documents only as paper copies, you need to transfer them to an electronic format two or three months before the auction. Often, lenders first sell a portfolio, and then begin to prepare documents. Some lenders, after the sale, just start taking inventory of what is and what is not. You need to understand that debt buyers put all the possible risks in the price. Your behavior pattern will definitely affect the price of your portfolio.
The auction mechanics of bidding implies high competition. It's like a gambling game, where participants make bets, sometimes even contrary to common sense. The more participants, the higher the competition, and hence the price. Some lenders understand this principle well. It is important to maintain the right balance. On the one hand, there is a risk that among the wide list of potential debt buyers there will be one that will create problems for the seller at the recovery stage. On the other hand, a significant restriction on the list of auction participants kills competition, it does not allow the price of the portfolio to "accelerate". The online auction checks each bidder for several dozen parameters. We approach such verification very carefully and I believe it can be trusted. If the debt buyer is a member of the RMAI or ACA associations, this is a sign that the company operates according to the law. Both associations are extremely responsible for their reputation and the reputation of their members.
There are sellers who combine accounts into one mega portfolio. Many potential buyers are simply not able to buy it. As a result, one or two companies can afford it. The final price of such a mega portfolio rarely exceeds the starting price. The correct approach to pooling your portfolio is based on understanding your customers. Do not limit those who have little money,#nbsp; perhaps they need your portfolio much more.
On the other hand, a seller can simultaneously put 30-50 pools up for auction, divided by state. It is difficult for small debt buyers to understand this array – only large ones are able to buy everything "without looking". Therefore, it is not necessary to "spam" and spread a lot of portfolios in one day. It is better to stretch it out in time.
The more buyers, the higher the price, but also there are slightly higher operating costs. You need to conclude more contracts, service assignments, and putbacks if necessary.
Sellers who auction debt portfolios that are not on a case-by-case basis, but in cycles (for example, monthly or quarterly), usually have well-established sales processes. Within the company, there is a dedicated staff that is engaged in the formation of portfolios, as well as the collection and preparation of documents. Surprisingly, there are still some sellers where these processes are not debugged at all. For this reason, the conclusion of the assignment agreement may be delayed not for a week, but for three or four months. I am not even talking about the collection and transfer of documents, but about a simple step – the conclusion of a contract. No matter how interesting the portfolio is, it gets worse every month. Not all buyers are ready to wait. As a result, buyers generally prefer not to "contact" some sellers.
The frequency of sales always has a positive effect on the price of the portfolio. When selling once a quarter, the lender sells more "fresh" debts than selling them on a case-by-case basis. For the debt buyer, the" freshness " of the debt is an opportunity to quickly return the money spent on the portfolio. "Fresh" debts are always more expensive.
As a rule, there are no miracles in sales. If one lender has a final value of pools that reaches 30% of the total amount of debt, and another has a five-fold lower, there is always a reasonable explanation for this. The sale of accounts can bring significant money or it can only be a form of their disposal. It's up to you to choose.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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