Third Annual Collection Agency Survey 2020: Troubling Times Ahead

Nobody would argue that 2020 wasn't a challenging year. However, the collection agency professionals we surveyed believe that the credit and collection teams still performed admirably. While there was some deterioration in claim quality, secondary placements saw a significant drop-off and the initial claim volumes remained stable – both positive trends. Overall, the survey found the agencies seeing their credit management clientele as a capable group.

But don't let the colorful 2020 sunset fool you. Those red skies are a warning that 2021 could be an even more difficult year. The agencies expect an increase in volatility, and that requires credit executives to act now to get their ship ready for the coming storm of business failures. The insights gleaned from this survey will help you navigate through the storm. 

In part 1 of our analysis, we look at trends involving the placement of collection claims as well as the agencies' economic outlook. Then in part two, we will delve more into how the collection agencies view the capabilities of corporate credit professionals, the bumps they see in the road ahead, and their prescriptions for traversing this credit and collection terrain.

Executive Summary

• Claim quality deteriorated in 2020 compared to previous years, though 63 percent of the respondents still rated new placements as good or better. Moreover, the percentage of new claims of excellent quality continues to increase. This means that an increasing number of credit departments are not hanging on to deteriorating accounts.
• This perceived reduction in claim quality was also exhibited when the collection agencies were asked to compare claims received in 2020 to those received in 2019, reversing the upward trend seen in previous years. Only 31 percent felt that claim quality improved in 2020 compared to 37 percent who saw quality deteriorating.
• Even though claim size trended to the upside in 2020, the volume of individual claims placed remained roughly the same across the entire survey sample. Meanwhile, the volume of secondary placements was down by more than 3 to 1.
• Slightly over half of the survey participants expressed a negative outlook for the 2021 economy. In last year's survey, we noted that the agencies' less optimistic outlook contrasted “with their rosier assessment of claim quality” the take away being that there was “time to act, but that the window may be closing.” Now we see even more economic pessimism corresponding with a deterioration in claim quality, suggesting that the window of opportunity has closed, and now is the time for all hands on deck in respect to credit due diligence and accelerated collection efforts.

Survey Results

• There was some noticeable deterioration in claim quality this past year in comparison to the stability exhibited in 2018 and 2019.
• In prior years, over 76 percent of respondents viewed claim quality as good or excellent, but in 2020 that figure dropped to 63 percent, which is still favorable.
• The percentage of claims being placed that were viewed as excellent has increased 200 percent since 2018, which is a very positive trend and an indication that an increasing number of credit departments are not hanging on to deteriorating accounts.
• Meanwhile, the number of claims that were seen as being only fair or sub-par increased 54 percent from 2019 to 2020.

Question: Please complete the sentence: Compared to 2019, the quality of third party placements has _________.

• There was a significant perception among the collection agencies that the quality of new claims deteriorated year over year, reversing the upward trend of prior years.
• Only 31 percent felt that claim quality improved in 2020 compared to 37 percent who saw quality deteriorating.
• This jives with the large increase in claims being received that were perceived to be sub-par

Question – Fill in the Blank: The average size of initial claims placed for collections has ________ in 2020 compared to 2019.

• Compared to 2019, over 4 times the number of responders reported that placements for 3^rdparty collections increased (48 percent) rather than decreased (11 percent).
• Meanwhile, just over 4 out of 10 reported the average size of placements was about the same in 2020 as it was in 2019

Question – Fill in the Blank: The volume of placements _________in 2020 compare to 2019

• Even though claim size trended to the upside, the volume of individual claims placed remained roughly the same across the entire survey sample

Question – Fill in the Blank: The percentage of placements for third party collections previously worked by another collection agency and then referred to you by clients has ________ in 2020 compared to 2019.

• While the majority (nearly 6 out of 10) reported the volume of secondary placements remained about the same, the remainder reported that volume was down by over 3 to 1.
• A decrease in the number of secondary placements may be indicative of either of two things or a combination of both:

1. Initial placements being of good quality, and hence being more highly collectible than if they were of lesser quality
2. The effectiveness of the collection agency in collecting on the initial claim in a reasonable timeframe

• Slightly over half of the survey participants expressed a negative outlook for the 2021 economy, continuing the trend toward the negative that we saw in 2020 when better than 4 in 10 were negative compared to under 1 in 10 in 2019
• Interestingly, there was an increase in those anticipating either a sharp economic decline or strong economic growth – this increase in polar opposites speaks to the uncertainty forecast for 2021
• In 2019 we noted that the agencies' less optimistic outlook, compared to 2018, contrasted “with their rosier assessment of claim quality” the take away being that there was “time to act, but that the window may be closing.” Now we see even more economic pessimism corresponding with a deterioration in claim quality, suggesting that the window of opportunity has closed, and now is the time for all hands on deck in respect to credit due diligence and accelerated collection efforts.