Why Sell your Debt to a Debt Buyer

When you sell your debt to a debt buyer, you are selling your debt to a legal entity or individual investor that acquires debt with the intention of collecting and profiting from the investment.

There are various types of debt buyers, which include: passive debt buyers, collection agencies that purchase debt, law firms, family offices and funds, and real estate note investors.

Passive Debt Buyers – Professional investors who specialize in acquiring debt, but do not actively engage in collecting it. They typically hire debt collectors and law firms to collect the debt on their behalf, and typically focus on unsecured accounts.

Collection Agencies – These entities acquire debt from clients for whom they have previously provided collection services.

Law Firms – Some law firms that provide debt litigation services also invest in the purchase of debt, and usually only purchase debt within the states where they are licensed.

Family Offices and Funds – These buyers are similar to passive debt buyers, as they engage a debt collection agency to recover accounts. However, their interests typically extend beyond charged-off accounts and they often purchase performing debt, including both unsecured consumer debt and commercial real estate debt.

How to Sell your Debt to a Debt Buyer

In making the decision to sell your debt to a debt buyer, there are some considerations to make prior to finalisation of the sale. You might wish to speak to;

1. a debt collection agent on the prospects of success in recovering the debt through employing skip traces, and other standard debt collection methods;
2. a debt recovery solicitor on the prospects of recovering the debt through legal debt recovery; and
3. an accountant on the benefits there might be with writing the debt amount off as a tax write off

When selling debt, the process is often made up of multiple steps, and through this process there will likely be questions as to the type of the debt, the debt amount, the amount of time it has been outstanding for, and the processes and methods you have gone through to try and collect the debt yourself.

Depending on the type of entity you sell your debt to, the nature of the questions asked and the processes will vary.

Generally, a debt purchase value will be at a significantly smaller price than the original debt amount. This is due to the risk, and the speculative nature of purchasing a debt, and so for these reasons the above mentioned advice one might decide to seek before selling debt is valuable. Further, additional steps may include:

1. Evaluate the debt: The seller evaluates the debt they wish to sell to determine its value and potential for sale.
2. Find a buyer: The seller researches potential debt buyers to determine which ones are interested in purchasing the debt.
3. Negotiate terms: The seller and the debt buyer negotiate the terms of the sale, including the price and payment terms.
4. Sign a contract: Once the terms of the sale have been agreed upon, the seller and the debt buyer sign a contract outlining the details of the sale.
5. Transfer ownership: The seller transfers ownership of the debt to the debt buyer, typically by providing them with documentation such as the original contract, payment records, and any other relevant information.
6. Collection efforts: The debt buyer assumes responsibility for collecting the debt and may use a variety of methods, such as phone calls, letters, or legal action, to recover the funds owed.

It’s crucial to keep in mind that the debt sale procedure can change based on the debt’s nature, the buyer, and the regulations governing the particular transaction. Before signing a debt sale agreement, the seller should also get advice from a financial counsellor and/or a legal debt recovery Solicitor.

Why Sell your Debt to a Debt Buyer

As mentioned above, there is a lot to consider when selling your debt to a debt purchaser. On one hand, there is some immediate cashflow.

Comfort and assurance

Larger companies can sell their past-due debts to quickly recover their unpaid balances without using additional internal or external collection procedures. Additionally, we provide a consulting service to help you manage the whole debt sale process, from the business case and feasibility to buyer selection, deal execution, and post-sale reporting.

Safeguard your brand

Strong compliance programmes and a quality structure that is in line with ISO9001 certification assist this. High quality is maintained through adherence to legal standards, routine call monitoring, refresher compliance training, and clearly defined processes.

Quick cash flow

While freeing up resources to focus on your company’s key competencies that add more value, selling your debt gives you a quick and predictable cash flow.

Further, there are many benefits to selling debt, including:

1. In some cases, immediate payment – Debt buyers are typically willing to pay a lump sum for the debt, allowing the seller to receive cash in hand quickly.
2. Reduction of  the collection burden – By selling the debt, the seller can transfer the responsibility of collecting the debt to the debt buyer.
3. Improved business cash flow – By receiving payment for the debt, the seller can improve their overall cash flow and use the funds for other purposes.
4. Reduced risk – Selling the debt can reduce the risk of default and the associated impact on the seller’s finances.
5. Focus on core business – By selling the debt, the seller can focus on their core business operations, rather than dedicating time and resources to collecting the debt, or even money in the event they need to hire a debt collection agent, or legal debt recovery solicitor. For example, if you are a small or medium sized business, and not a bank or lending institution, than this may be particularly important to you.

Important Considerations when you Sell your Debt to a Debt Buyer

Before selling a debt, it is  important to consider this is the right move for you and / or your company. You might consider the following before selling:

• Do you trust the debt purchaser? Bearing in mind they are dealing with customers of yours who may or may not be return customers
• Is your debt ready to be sold? Ensure there is enough information available regarding your debtor to ensure an optimal evaluation.
• Is it the right time to sell the debt? You may not need cash flow at this time, and there may be decent prospects of success with  regard to recovering it.
• Seek financial advice regarding the impact of taking a loss with your debt, ensure you are in the position where you will benefit from the lump sum payment.

Benefits of Selling your Debt to a Debt Buyer

The Australian bureau of statistics gathers information on the financial state of Australians during the census and also information based on financial statements  made available by the Australian Taxation Office. Between 2021-2022, there was a 7.3 per cent increase in household debt, which may for some be particularly challenging, with the recent increase in the cost of living.

Furthermore, with the average house hold debt increasing by 3.7 % to $139,064. In addition, Australia’s house hold liabilities also increased from $189,500 in 2018, to $203, 800 in 2020. While there are not currently more recent figures, some analysts believe that current financial struggles may continue, with the increase in the cash rate.

Further,  While it might not be the most commercially viable option for some, the option of selling some debts may provide some relief for those who are struggling financially.

While the majority of household debts in Australia are related to household mortgages, there are other, more serviceable debts, such as credit card debt, personal loans and car loans, which could benefit from an increased cash flow or lump sum payment from the sale of a debt, depending on your personal financial situation.