Figures from the New York Fed are balances outstanding, not sale prices. Bands cited from DebtMarket’s pricing study are conversation ranges, not offers. This note is education for operating companies and creditors. It is not legal advice.
A first bid on charged-off paper is a purchase of receivables by an operating company. The company names the product it will buy, the states it will take, the documents it will sample, the money it can fund, and who will work the accounts after closing. This note is about that purchase. It does not describe how to open a collection agency.
Write the box before you ask for a tape
- Product. One line, such as fresh bankcard charge-offs from the issuer. Add a second product only when you are ready to sample it separately.
- States. The list you will take, and any state you will not take.
- Balance. The unpaid-principal floor, and whether post-charge-off fees are in or out.
- Media. The documents you will open, and the count. On a first read this desk uses 25 accounts under 500 rows and 40 accounts at 2,000 rows or more.
- Funding. The number of days you need after an award, and the entity that will take title.
- Work. In-house staff, or a collector you will hire after funding. The contract should say which.
ACA International membership and Receivables Management Association International certification are credentials some creditors ask about. They are additional. A first bid on this desk is read from the box, the sample, and the ability to fund.
Price from a sample, then fund once
The percent you discuss is a percent of unpaid principal at the cut-off date. For bankcards, the conversation range on this desk is 3 to 8 percent of face, in the pricing study. That range is not an offer. Your own costs decide whether a percent inside the range works. Write the purchase price and the work costs on one page, as in how buyers earn a spread.
Title passes at closing and funding. The 90-day warranty starts then. Paid-prior and deceased status are measured against the earlier cut-off date. After funding, the seller forwards debtor communications. Your staff or your collector does the work. The date rules are on cut-off, closing, and funding.
Where the first file comes from
Operating companies that want to be considered for files start at buyers. The purchase sequence, from the tape through the bid, is how to buy a charged-off portfolio. Files offered on the open web are discussed at where to buy debt portfolios. The legal definitions that sit on top of a purchase are in FDCPA and Regulation F.
A first month, in order
- Write the box: product, states, balance floor, media you will open, days to fund, and who works the accounts.
- Ask for a snapshot with no account numbers. Read it against the box. Pass quickly when the product or the states are outside it.
- Sign the NDA, take the tape, and run the sample. Twenty-five or forty accounts, with the four lines in the bid: media fraction, title, exclusions, balance definition.
- Discuss a percent of unpaid principal. On bankcards, start from the 3 to 8 percent conversation band and then use your own costs. The band is not an offer.
- Sign, cut off, close, and fund. The warranty runs 90 days from funding. After funding you, or your collector, work the accounts. The seller forwards.
Skip any step that asks you to collect before you own the accounts, or to fund before the sample. Companies that are ready for step one start at buyers. The worked version of the sample is due diligence before a bid.