Staying on top of residential rental market debt is something on the mind of every property manager, especially with new clients or prospects. When it comes down to it, dealing with debt is just part of doing business, and perhaps inevitable. However, setting realistic expectations around debt recovery—and knowing when to hire a collection agency—helps tremendously, and also allows you to maintain positive client relationships.
Some Key Factors Affecting Recovery
The rate of debt recovery among residential property owners is very low—and decreases the older accounts age. In fact, the Association of Credit and Collection Professionals (ACA International), the largest trade association representing the debt collection industry, reported only a 9.9% average recovery rate by third-party debt collection agencies in 2016. To put this into perspective, only 1 out of every 10 delinquent or past-due collection accounts are recovered successfully.
Additionally, the chances of recovering debt greatly declines as accounts age. Studies done by the ACA have shown that every 30 days that go by of a balance being overdue makes it 16% less likely to be collected. Therefore, if you wait until an account is 90, 180, or even 365 days late before turning it over to a collection agency, your chance of collecting will be very low.
Debt Collection and Recovery Statistics
The higher the overdue balance, the lower the average liquidation—especially when including future rent or high penalties. A large national agency recently shared an analysis of debt recovery across 1.2 million residential units. What did it reveal?
The collection rate for smaller balances are significantly higher than with high balances. Balances below $500 averaged around 40% liquidation, a very high percent for debt collection efforts. Meanwhile, balances around $1,500 drop to only a 15% average liquidation rate, and balances greater than $4,000 have only a 3% to 6% recovery rate.
Accounts with a significantly high balance are not only more challenging to recover, they also inaccurately skew your bad debt figures and collection results. It is absolutely essential to be aware of these statistics and factors, and establish realistic expectations around the chances of recovery of your accounts in collections. That’s why the best thing a property manager can do after 30 days of an unpaid balance is to hire a collection agency.
Some Things Are Out of Your Control
Many factors affect residential collection rates. Economic shifts and local demographics prevent high collection and recovery rates. For instance, luxury homes with a highly selective property management tenant screening process results in a very low debt rate compared to complexes that serve an economically struggling class. In most cases, there’s a distinct pattern between resident community profiles and the collection results that are obtained.
Keep in mind that you can’t control everything; certain tenants will have a difficult time paying off their debts.
Establish and Solidify Your Process
Your internal process and how you handle accounts greatly impacts your debt recovery rates. While it’s important to be firm and consistent on all overdue accounts, it’s vital to know when it’s time to hire a collection agency. Don’t let overdue accounts go unpaid without any internal effort. Check out our tips for property owners to collect and recover debt.
If you don’t have the internal staff or resources to attempt collecting debt, transfer all past due accounts to a third party collection agency within 30 days. After 30 days, your chances of recovering the debt from past due accounts goes down greatly.
Property managers and landlords have a much better chance of recovering debt by using a collection agency rather than attempting to collect themselves. This not only wastes your own personal resources, but each day that goes by takes away 16% of your chances of ever recovering the debt. Additionally, most collection agencies are contingency-based—which means they don’t pocket any money unless they successfully collect and recover the debt owed to you.
Southwest Recovery Services
We are a nationally-recognized collection agency specializing in apartment and property debt collections. At Southwest Recovery, we abide by the Fair Debt Collection Practices Act and strive to maintain integrity and compassion when dealing with tenants and families in residential debt. We have offices in Dallas, Houston, Austin, San Antonio and Oklahoma City. To learn more or to collect an apartment or property debt, contact us today.