An increase in collections

Debt collection is a growth industry these days, but that doesn't mean it's a terribly profitable one.

As more people fall behind on their credit card bills and car payments, collection agencies are busier than ever, churning out warning letters, calling people's homes or businesses and even dragging them into court.

But collecting on those mounting debts is tougher than ever. High unemployment and plunging home equity have left debtors with fewer resources -- and some say less inclination -- to repay debts and repair their credit ratings.

"I work four times as hard to collect the same amount of money as I did two years ago," said Robert Tavelli, head of the Santa Rosa-based collection firm NCCS Inc. "We're seeing probably a 300 percent increase in listings with no greater increase in recoveries."

No one's going to shed a tear to hear debt collectors are having a tougher time shaking down people who are behind on their bills. Some might even cheer.

But the inability to collect outstanding bills is a serious problem for businesses, and one that could threaten a sustained economic recovery. The more bad checks or delinquent accounts a business can't recover, the greater the pressure to cut employees, who in turn might fall behind on their own bills, creating a vicious cycle.

"Many of my clients are suffering," Tavelli said. "They've had to lay off people because they can't collect their receivables."

When it becomes a choice between sending customers or patients to collections and keeping employees, businesses are increasingly choosing collections, said Chris Schumacher, president of Optio Solutions, a collection firm based in Rohnert Park.

When business was good, companies focused on growth. Now that it's gotten tougher, many are watching in horror as the bad debts on their books mount, leaving them little choice but to take a tougher approach to collect past-due bills.

"A lot more businesspeople are willing to listen to how we can help them with their slow-paying accounts," Schumacher said. "We're definitely seeing an uptick."

Schumacher estimates his business is up about 50 percent in the first six months of this year, compared with the prior six months. That's partly because the 35-employee company is young and in growth mode. It was founded in 2007 as a spinoff from Rohnert Park-based check guarantee company CrossCheck Inc.

But Schumacher, an industry veteran, says the recession has made the collections business far harder than it was just a few years ago. Many people are facing the loss of a house or job and may have multiple bill collectors contacting them, he said.

The result is that fewer debtors today are capable of repaying what they owe in a lump sum. With consumers against the wall, some debt collectors have become more willing to accept payment plans.

"You have to be more flexible because there are more people that don't have the income to put food on the table and keep paying their mortgage and still be able to pay these other things off," Schumacher said.

For example, instead of insisting on full payment of a $1,000 dental bill, Optio Solutions collectors will work with debtors to structure a payment plan, such as $200 every pay period, Schumacher said.

Many of the company's clients are doctors, dentists and veterinarians. Often, these professionals have strong relationships with their patients, and they want to preserve those relationships while still getting paid, Schumacher said.

"Ultimately, we win and our client wins when that customer continues to use our client's services or products," he said.

In addition to preserving the customer's relationship with the business, being flexible and treating people respectfully, aside from being the right thing to do, improves the collection rate, Tavelli said.

"I collect more money being nice than I would being belligerent," he said.

-- You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.