Prices are expected to increase over the three years to 2016 due to increasing demand. As household debt rises, demand for debt collection services will increase as well, allowing suppliers to boost prices.
Los Angeles, CA (PRWEB) December 23, 2013
Debt collection services have a buyer power score of 4.3 out of 5. The price for debt collection services varies widely based on the type of supplier as well as the type of debt accounts the buyer wants recovered, says IBISWorld analyst Caitlin Newsom. There are two types of suppliers: contingency suppliers and flat-fee suppliers. Contingency suppliers charge a buyer a percentage of the amount of debt collected. Flat-fee suppliers, on the other hand, charge a fee per each account regardless of the amount of debt that is eventually recovered. The age of accounts influences the price for both contingency suppliers and flat-fee suppliers. Older accounts are charged at higher prices because older debt is much more difficult for an agency to recover and requires more resources on behalf of the supplier. The documentation of the debt also affects price. If a buyer has little information on the debt, it is more difficult for a collection agency to persuade a debtor to pay. The collection agency cannot threaten legal action since they do not have enough information to pursue litigation.
Buyers have a fair amount of negotiating power with collection agencies due to the high availability of substitutes, low market concentration and low switching costs. A buyer can choose to use a debt buyer instead of a collection agency, which would also reduce the buyer's risk of having the debt on their liabilities. Having alternative options gives buyers more negotiating power since they have the option of walking away from the debt collector entirely. The market for debt collection services is also not very concentrated. There are about 4,500 collection agencies throughout the United States, including companies such as NCO Group Inc., GC Services Limited Partnership, iQor US Inc. and Coface Collections North America, continues Newsom. The high number of agencies to choose from gives a buyer an edge when negotiating a price and the terms of the contract. Agencies are willing to negotiate to attract customers since buyers have numerous alternative options to meet their needs. Also, there are low switching costs for a buyer, allowing them to easily take their debt accounts elsewhere. This added concern for the collection agency also contributes to a higher negotiating power for the buyer.
Additionally, prices for debt collection services are expected to continue rising in 2013 and throughout the next three years. Due to the improving economy, debt collection success rates are rising and boosting suppler profitability, giving buyers more room to negotiate. Also, aggregate household debt and interest rates are expected to rise, boosting demand for collection services. Higher demand will allow suppliers to raise their prices in spite of the increased ease in collecting debt. Debt collection services have moderate profit margins, accounting for 9.0% of revenue. These profit margins can also be a source of buyer negotiation, as they are higher than most other services in this market. For more information, visit IBISWorld’s Debt Collection Services procurement research report page.
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IBISWorld Procurement Report Key Topics
This report is intended to assist buyers of debt collection services. Creditors hire debt collection agencies to help collect payments on accounts that are past due or are in default. Debt collection agencies do not include debt buyers, which are companies that buy debt at reduced rates from creditors or debt collection agencies and then retain all the money collected from the accounts.
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Vendor Financial Benchmarks
Buying Lead Time
Key RFP Elements
Buyer Power Factors
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