Big business opportunity for Indian BPOs:

  In any business, there are always a section of customers who falter on payment after buying a product or using a service. Though that percentage is often very small for individual sellers, it becomes significant for companies who are into the business of providing credit, such as personal finance and credit card companies. In consumer businesses (such as these), while the overall amount is significant, it is spread over a large number of delinquent debtors. So collection often becomes a difficult task for large creditors, which prompts them to assign the task of collecting their delinquent debt to a third party.

                        Though in the US, the practice has been there for quite some time, it has been approached by creditors in more of an ad-hoc basis, giving rise to an industry that is sizeable, yet unorganized, in many cases quite localized. Account Receivables Management services, as this service is known in the business jargon, or collections, as it is more popularly known, is one of the fastest growing business segments. According to the Association of Credit and Collection Professionals, creditors placed a total of close to $135 billion delinquent consumer debt for collections in 2000, almost double of $73 billion that was placed for such collections in 1990.

                        Yet, for Indian BPO vendors looking at tapping the opportunity, that is only part of the good news. What should make them more optimistic is the changing trend in how the collection is handled by the creditors. For understanding that, it is probably apt to have a look at the industry dynamics. According to the Kaulkin Report on the US collections industry, published by the Kaulkin Ginsberg Company, and considered one of the most comprehensive studies on the industry, in the year 2000, there were more than 6,500 collection agencies in the United States, trying to collect about $135 billion of delinquent debt placed for collections by the creditors, usually led by the banks and credit card companies but including utilities, government and healthcare units as well, and making $13 billion of revenues for themselves in the process.

                        However, what is more important to understand is how the delinquent debt was and is handled by the debtors. According to the same report, 58 percent of the $13 billion of industry revenue came from contingency collections, debt placed for collections on a “contingency” basis, where the agencies are paid on a contingency basis.