The Debt Collection Process UK

When it comes to debt collection, most lenders and collections companies will follow similar processes. This is to ensure that the borrower is treated fairly, and that a suitable outcome can be achieved. It’s important to note that lenders should inform customers of the arrears process before a loan is taken out, so that if they are unable to make repayments, they’ll already be aware of the next steps.

While the collection process for priority and non-priority debts works in much the same fashion, there may be a few key differences. With a non-priority debt, it’s likely that the borrower took out a lump sum loan, and is due to make payments in instalments. Any arrears would therefore be added on to these payments. But with priority debts, such as Council Tax arrears, the overdue payments will need to be made on top of the ongoing bills.

The debt collection process won’t affect everyone – most people can comfortably afford to make the due repayments on a loan or other form of credit, even if faced with a short term financial issue. But longer term financial difficulties may cause a debt to fall heavily into arrears. To help you better understand the debt collection process, we’ve outlined this in more detail below.

What is a Priority Debt?

A priority debt is exactly what it sounds like – something that needs to be treated as a priority. They can cause you serious financial problems if you don’t address them. Priority debts include things like rent and mortgage arrears, Council Tax arrears, court fines, gas and electricity arrears, as well as unpaid National Insurance, VAT, or income tax.

If someone is struggling to pay their priority debts, it’s often recommended that they get in touch with a third party for help and support. For instance, the Citizens Advice Bureau can offer free and impartial advice for anyone having financial difficulties.

debt collection

The Debt Collection Process

In terms of the debt collection process, when an individual has overdue debts, either the lender or a debt collection agency will try to work with them to find a solution. Or in some cases, the borrower will be working with a debt purchase company, who will have bought the debt from the original creditor.

Regardless of who the borrower is dealing with, the process tends to work in the same way. The lender or third party will get in touch with the borrower to set up an affordable repayment arrangement, discussing their current financial situation to determine a suitable amount to repay.

Debt Collection Process Example

Unless you get in touch with them beforehand, the first step with debt collection is that you’ll be contacted by the lender, debt collector, or debt purchaser. This will usually be in writing – they will introduce themselves and let you know what the next steps are. The aim of this initial contact is to set you up on a comfortable payment plan, so that you can start decreasing your outstanding balance. After a written letter, you will probably be contacted by phone and email too.

The key thing to remember is that you can’t simply ignore the communications. While it may be tempting to bury your head in the sand, this will often mean that the outstanding balance will keep getting higher. Most debt collection companies and lenders will freeze the interest if you inform them of any financial difficulties.

And if you do find it challenging to talk to lenders and other debt collectors, there are a number of free and independent companies you can speak with, who can act on your behalf. For example, Step Change and PayPlan can discuss your debt options with you, such as a debt management plan, as well as insolvency and bankruptcy solutions. They can also contact your creditors for you to set up these arrangements.

What if the Debt Doesn’t Belong to You?

If you’re being contacted by a lender or other debt collection company, but have no knowledge of the outstanding debt, it’s important not to panic. You can explain this to the advisor you speak with, and they can then investigate this further.

And if it does turn out that you have been a victim of fraud, and someone has taken out credit in your name, it’s a good idea to report it. You can contact Action Fraud on 0300 123 2040, or report the incident via their website. You’ll be provided with a crime reference number, which you can pass on to the debt company. Once their records have been updated, the business should then stop contacting you.

debt collection UK

The Debt Purchase Process

Sometimes a lender will feel that they are not fully qualified, or are wasting their resources in chasing debt. In such cases, they may decide to sell the debt to a third party. Although the lender won’t get back the total due amount, not having their team constantly chasing the loan can mean they still save money. And for the debt purchaser, as they will be buying the portfolio at a fraction of its outstanding value, as long as they collect a small portion of the debt, they should be making a profit.

When a debt is sold, a letter will normally go out to the borrower, advising them that another company is now responsible for the account. This letter is often referred to as a Notice of Assignment. The debt purchaser will take on the same role as the original lender, though may choose to pursue other avenues when it comes to collection, such as taking the debt to court.

In terms of the responsibilities of the debt purchaser, they will need to provide the borrower with any requested information about their account, and help them come to an affordable arrangement. The company will also be responsible for reporting the status of the account to one or more of the UK’s credit reference agencies, so that the borrower’s credit file remains up to date.

Where to Buy Debt UK

If you’re looking to purchase debt portfolios, which can be a great investment opportunity, one of the simplest ways to go about this is through a broker service. Finding debt portfolios that you’re confident that you’ll be able to make a return on will often be challenging, with hours spent searching for the best option. But with a broker like EverChain UK, you can weigh up a huge number of portfolios, all in the same place!

With EverChain UK, you can also use our advanced filtering tools to find portfolios that meet your criteria, as well as set alerts which will notify you when similar portfolios are uploaded to the network. You can easily compare options, and come to us with any queries should you need some advice.

Compliance in Lending

Many lenders talk about compliance and responsible lending practices, but what do these terms actually mean? While there are slightly different rules and regulations for different types of loan, for the most part, the guidelines are universal. These have been set out by the UK’s financial regulatory body, the Financial Conduct Authority. We’ve explored some of the key compliance regulations within UK lending below:

Who Are the Financial Conduct Authority (FCA)?

The FCA is the regulator for over 50,000 financial institutions and markets across the UK. Their main aim is to ensure that financial markets are fair, honest, and effective. That way, consumers are guaranteed to get a fair deal. In order to carry out certain activities, financial firms must get the approval of the FCA, and be either authorised or regulated by them. Once authorised, firms will have to continue to meet the rules and standards set out by the FCA, or be at risk of having their authorisation revoked.

The Financial Conduct Authority understands that financial services play an important role in our everyday lives. From loans and credit cards to direct debits, you may not realise just how much you rely on the services of the FCA, to keep lending practices fair and compliant.

compliance in lending

Why Was the FCA Founded?

The FCA was established relatively recently, in 2013. Previously, financial institutions were regulated by the Financial Services Authority (FSA), but this was split into two bodies in 2013 – the FCA and the Prudential Regulatory Authority (PRA). The latter is still in existence today, mainly focussing on banks, building societies, and credit unions.

The creation of the Financial Conduct Authority was due to the financial crisis in 2008. The government felt that a complete financial regulatory restructure was necessary, in order to prevent further major financial issues.

Prior to the FCA being founded, the financial market was full of mis-sold loans, fraud, and misconduct. This had resulted in billions of pounds of compensation and fines, dramatically affecting the UK economy. The Financial Conduct Authority intended to protect consumers against such malpractice, and hopefully boost the country’s economy too.

Checking Creditworthiness

In order to make sure a credit provider is lending responsibly, they have to ensure that they carry out appropriate checks. One of these checks is assessing creditworthiness. Before entering into an agreement with a borrower, lenders must look at their credit history, to get an idea of how they have managed their money in the past.

The simplest way to do this is to look at someone’s credit file. A credit file, or credit report, contains details of any credit an individual has taken out over the last six years, and whether payments were made on time. Regular payments, such as utility bills and a mobile phone contract, are also recorded on your credit file. All of this information can also be used to calculate your credit score, which is a number that represents your creditworthiness. Essentially, the higher your credit rating, the higher the likelihood that you’ll be accepted for a loan in the future.

lending compliance

Affordability Assessment

Alongside credit checks, a lender must also look at the affordability of a borrower. They do this by assessing an individual’s income and expenditure. The loan provider will consider how much someone is earning each month, through wages and other means, and then compare that to their outgoings. They need to ensure that the borrower has enough disposable income to make the due repayments, and still have some money left over, in case of emergencies.

It’s also essential that a lender asks the borrower whether there is likely to be a change in their financial situation throughout the course of the loan. For instance, if the borrower’s hours at work were due to be reduced moving forward, it would be the responsibility of the firm to estimate how much their income would be from that point, and determine whether the loan payments would still be affordable.

It’s furthermore important to note that the lender has to take into account other credit repayments, when looking at a borrower’s affordability. While these payments may be classed as non-discretionary expenditure, they could still include priority debts, such as mortgage repayments.

Treating Customers Fairly

The above checks are in relation to an application for credit. But once a loan has been taken out, there are still guidelines a lender has to follow. These centre around treating customers fairly, throughout the entire customer journey. Part of this is about transparency – lenders must make the terms of the loan accessible and straightforward, as well as clearly advertising their interest rates and any relevant charges.

Treating customers fairly is particularly important when a borrower is unable to keep to their original agreement. The FCA handbook states that a firm must treat customers with forbearance in these circumstances. Forbearance could include any of the following:

  • Suspending or reducing interest or charges for a short period of time, especially if a customer is able to demonstrate that they are experiencing financial hardship
  • Allowing borrowers to defer their payment of arrears, if adding these arrears payments to their instalments would make the payments unsustainable
  • Accepting token payments while allowing a customer to recover from unexpected financial changes
  • Advising borrowers of free and impartial third parties, and referring them to these debt advisors where appropriate

Overall, in order to be compliant with UK financial regulations, firms must make sure that the loan is affordable for the customer, and that they have a good track record of repaying credit. Lenders also have to be transparent about their lending practices, and treat borrowers fairly at all times.

Debt Info – 5 Common Types of Debt

When it comes to debt, there is a wide range of different types, with some forms of debt falling into numerous categories. For instance, all debt is either secured or unsecured, but a mortgage and a car finance agreement (both of which are secured loans) look very different from each other.

Some types of debt are also considered to be a higher priority than others. This is due to the fact that the consequences of non-payment are more severe. You could be at risk of losing your assets, such as your home or vehicle.

To help you gain a better understanding of the most common types of debt, we’ve explored five different categories of debt below:

1. Consumer Credit

While the name sounds a little ambiguous, the ‘consumer’ part of consumer credit refers to the Consumer Credit Act 1974. The majority of this type of debt in the UK is regulated by this Act, which covers your rights when borrowing money. Thus if you were to fall behind with your repayments, you’d be protected from unfair debt collection practices.

Consumer credit includes things like personal loans, short term loans, credit cards, guarantor loans, car finance, and store credit. With most of these options, you’d borrow a set amount, and then make fixed monthly payments to the creditor. This could be over the period of months or years.

If they are fixed, the lender has to let you know how much the instalments will be each month, before you sign the loan agreement. This makes them easier to budget for. Credit cards and store credit work a little differently though – you’ll need to ensure you’re at least paying the minimum amount each month, and should always read the terms and conditions very carefully.

Most loans will have interest applied, which will be repaid alongside the principal amount borrowed. The rate of interest will depend on various factors, including how much you’re borrowing, the loan terms, and how good your credit score is.

common types of debt

2. Business Debts

In terms of business and tax debts, these will generally be owed to Her Majesty’s Revenue and Customs (HMRC), and include NI and VAT arrears, as well as Income Tax (PAYE). All of these debts are classed as priority debts, as there can be serious consequences for not paying them. Court action could be taken, and bailiffs, or enforcement agents, may remove and sell your assets to pay off the debt.

If you are facing tax arrears, the first thing you need to do is check that the outstanding balance is correct. Next, you should work out how much you’re able to pay towards the arrears, by completing a budget. You should then contact HMRC and set up a payment arrangement, making monthly payments and keeping them updated should anything change.

3. Contract Debts

Contract debts include anything in which you enter into a contract for over a minimum period. This is generally a regular service such as a mobile phone contract, a TV package, or gym membership. Even if you’re no longer using the service, and wish to end the contract early, there is a good chance that you’ll have to pay the remainder of the contract. And if you fall behind on payments, you’d need to cover these on top of your regular due payments.

As per the terms of your contract, should you stop paying entirely, your account with the company would fall into arrears, and you’d lose access to the service provided. If appropriate action is not taken after your account fell into arrears, it could then default, and further action could be taken. The debt would be dealt with in the same way as other unsecured debts, with potential court action later down the line.

The best thing to do if you’re struggling to keep to your contract is to get in touch with your service provider as soon as possible. They can then discuss your options with you, such as arranging a payment plan or setting up a reduced settlement payment. You may even be able to cancel your contract without having to pay a fee – this will usually depend on the terms of the agreement and the reason for cancellation.

common debt types

4. Housing Debts

If someone were to have housing debts, this may refer to either rental payments or mortgage payments. The obvious concern with this type of debt is that you’re at risk of losing your home. Unless it’s due to a one-off event, struggling to pay your rent or mortgage could be a sign of financial difficulties. You may therefore wish to speak to an independent third party, such as Step Change or the Citizens Advice Bureau about the choices you have moving forward.

For instance, you may be eligible for Breathing Space in terms of your rent, or a payment holiday in terms of your mortgage. Both of these options will give you a little bit of time to get your finances in order, though do bear in mind that you will need to catch up with your missed payments over the months following the payment break.

5. Payday Loan Debts

If you’re unfamiliar with the term, a payday loan is a type of loan where you borrow a relatively small amount of money for a short period of time, and then repay the loan in full when you next receive your wages. As payday loans are aimed at people with a bad credit rating, the interest tends to be higher than with other forms of credit.

While payday loan debts are generally relatively small, as people usually borrow between £100 and £1,000, taking out too many short term loans can result in financial hardship. People may also enter what is known as a debt spiral, where they take out further loans to cover the payments of previous ones.

As with any of the examples above, if you’re struggling with payday loan debt, it’s sensible to speak to a free and impartial organisation, who can discuss your options with you. This could be something as simple as setting up a payment arrangement, or could be a debt management or insolvency solution. They’ll take your individual circumstances into account, and will let you know about any long term ramifications of any option you’re considering.

Is Selling Your Debts Worth It?

When it comes to selling debt, it’s not uncommon to wonder if the benefits outweigh the disadvantages. You’re unlikely to get a fantastic rate in terms of the outstanding balance of the loans, sometimes selling at only pennies to the pound. But you could actually save money in the long run – this is why it’s important to look at the bigger picture, and determine whether selling on debt is the best choice for you.

What is Debt Sale?

As a lender, you’ll be aware of the unfortunate truth – not everyone will repay their loan. Regardless of how many credibility and affordability checks you run, there will always be a small percentage of debtors who have no intention of paying back the money. Some people of course will be affected by circumstances outside their control, and won’t be able to repay the debt, but these individuals will generally work with you to set up a repayment arrangement. With debt sale, you’re looking to pass on older debts which you’ve been unable to collect.

So why do lenders decide to sell debt, rather than try and collect it themselves? Essentially, there comes a time when the business has to consider whether chasing the debt is becoming more costly than it’s actually worth. It might be better to simply cut your losses, and get some money for the loan.

selling your debt

Selling a UK Debt

When faced with older debt that they’re unable to collect, many creditors choose to sell it to a third party. Debt purchasers will have far more experience in collecting bad debt, and should be able to recover the funds quickly and efficiently.

Once the debt has been sold, the lender no longer has any involvement in the loan. The purchaser will effectively become the new creditor, with the borrowers making repayments to them moving forward. It is important to note that as both lenders and debt purchasers are governed by the same financial regulations and guidelines, the customer will always be treated fairly. And the debt buyer will not be able to amend the terms of the original agreement.

For instance, if the loan had reached an interest cap, and the lender could no longer apply further interest or charges, the debt purchaser would not be able to either. They may however have other policies in place, such as pursuing court action, that the lender chose not to proceed with.

Buying Debt

In terms of buying debt, a debt purchaser will buy outstanding debt from a lender, usually as part of a larger portfolio. This portfolio will be made up of similar debts, such as loans of similar values, or loans that were taken out around the same time. So why do companies buy debt? The lender will have undoubtedly already chased the debt, and won’t have been able to collect the amount due.

The reason debt purchasers choose to buy old debt is that they can get it at an incredibly low rate. While the outstanding balance could be £1,000, they may be able to purchase the contract for £50. This means that as long as the debt buyer is able to collect just a fraction of the balance, they will make a profit. And as debt purchasers can often be more flexible in their collection methods, like issuing a CCJ, they are likely to reclaim much of the money owed.

Buying Debt UK

Benefits of Selling Debt

Overall, selling on bad debt as a lender should be worth it – debt sale comes with a number of advantages. There is the obvious benefit of getting rid of older debt, freeing up the time and resources of employees, and allowing them to focus on what they do best. But you may not realise that this in turn comes with advantages – allowing your staff to concentrate on early stage collections should lead to a more engaged and happier workforce. Chasing bad debt can become demoralising if you have not had experience and training in the processes involved.

Another benefit of debt sale is that a real consequence will be introduced to the creditor’s collections cycle. Borrowers probably won’t want their debt to be sold on, as this could mean further action such as court proceedings, so should be more keen to engage with the lender. Hopefully this will mean less debt would need to be sold in future.

Advantages of Selling Debt Through a Broker

If you do decide that selling your old debts is the best option for you, you may wish to consider working with a debt broker like EverChain UK. We can help you securely load your portfolio, and then market it to our buyer network. That way, you won’t need to worry about comparing individual debt purchasers – they will bid on your portfolio, meaning you’ll get the best possible price.

Another benefit of selling through EverChain UK is that you’ll get a quick cash injection into your business. After chasing old debt for a significant amount of time, it can be a relief to sell it on and reclaim some of your funds. And because our platform allows you to not only review bids, but also compare things like buyer/agency complaint trends and ratios, you can be confident that you’re choosing a suitable buyer.

What Does Debt Sale Mean for Consumers?

As a debt seller or buyer, you’ll undoubtedly know of the benefits that come with debt sale. But what does the process mean for the borrower? It can often be a confusing transition for the consumer, so regardless of whether you’re selling or purchasing the debt, it’s generally a good idea to be transparent about what’s happening.

To help you understand more about the debt sale process from the perspective of the debtor, we’ve explored this topic in more detail below.

debt sale consumers

What is Debt Sale?

Debt sale is precisely what it sounds like – it’s the process of a lender selling on an outstanding debt to a third party. The creditor will negotiate a price with the purchaser, usually as part of a larger debt portfolio, with similar debts included. Once the debt has been sold, the original creditor will no longer have any involvement in the loan.

The selling price of a debt will never be for the full outstanding balance. In fact, it’s usually a fraction of the balance – at pennies to the pound. So this begs the question, why is debt sold in the first place?

Why Do Creditors Sell Debt?

If you were a creditor, selling a debt of £1,000 for around £50 sounds like an odd thing to do. Surely the lender is losing out? Actually, there are a number of benefits to selling debt! For one thing, creditors are not usually specialised in debt collection, so may not be experienced in chasing debt. They may therefore be spending a lot of time and resources on debt that they have no hope of reclaiming. Selling on the debt may save the lender money in the long run.

Other advantages of debt sale include the fact that the lender’s employees can focus on what they do best – early stage collections – which should lead to a happier and more engaged workforce. Chasing old debt can be challenging if you’ve not had the appropriate training and experience.

Selling debt can furthermore provide a real consequence for a lender’s collections cycle. If borrowers know that their debt may be sold on if they don’t make the due repayments, they should be more inclined to engage with the lender, and set up payment arrangements.

Who Buys Debt?

A debt purchaser will buy debts from a lender, at an incredibly reduced price. The reason the debts are sold on at a reduced rate is because the debt purchaser is unlikely to be able to collect the outstanding balance of all open loans. But even if they collect a small percentage of the total owed, they should still make a profit.

Once the debt has been sold, the borrower’s liability will be passed on to the debt purchaser, and they will no longer need to pay back the original lender. The outstanding amount should not differ, however, excepting any additional interest that is applied.

Alongside the great return on investment rate, one of the advantages of debt purchasing is the increased flexibility. In comparison to lenders, debt buyers are usually able to use much more creative debt collection methods. For example, not all lenders will have a policy for pursuing County Court Judgements, while debt purchasers may be well versed in taking debt to court.

who buys debt

Does Debt Sale Affect the Debtor?

Technically speaking, when a debt is sold to a third party, the borrower should not be impacted much. Their liabilities and rights will remain the same, as both lenders and debt purchasers are required to follow the same rules and regulations. The only real difference is who the debtor is sending money to.

The debt purchaser will essentially become the new creditor, and will need to stick to your original credit agreement. This means that they won’t be able to change any of the terms of the debt, if the lender was not able to. For instance, if the lender was no longer able to apply interest to the loan, as it hit a cap, the debt buyer couldn’t apply interest either.

Does the Borrower Have to Pay?

Despite the fact that they did not take out a loan with the debt purchaser, the borrower is still liable for the debt. It’s therefore recommended that the debtor gets in touch with the company as soon as possible, to arrange a repayment plan. This should prevent any further action, or additional interest from being applied to the loan. The debtor can then start making repayments in the same way they would with the original creditor.

It’s also worth noting that borrowers can dispute a debt with a debt purchaser, just like they can with the original lender. If the debtor believes that they shouldn’t have to pay the balance, due to things like fraud or the debt being statute barred or prescribed, they are able to dispute it.

Debt Collectors and Debt Sale

Not all borrowers realise that there is a difference between a debt collector and a debt purchaser. With the former, this is a company acting on behalf of the original lender – they won’t own the debt. Debt collectors are simply agencies that specialise in chasing older debts. Debt purchasers, on the other hand, will buy the debt, and borrowers will need to make payments to them instead of the lender.

If a debt is sold, the original creditor should inform the debtor of this, and give them a chance to settle the loan beforehand. If the loan remains outstanding, the new owner of the debt will send a letter to the borrower, explaining who they are, and that all future payments will need to be made to them. This letter should also provide the name of the original lender, so that it’s easy to determine which debt it relates to.

This can be particularly helpful for debtors with a lot of outstanding credit. If this sounds like you, and you’re struggling with debt, it may be a good idea to contact independent third parties such as Step Change or the Citizens Advice Bureau, who can offer free and impartial advice.

Joining a Debt Buyer Network

Looking to join a debt buyer network? Here at EverChain UK, our certified buyer network allows you to access a larger selection of portfolios for sale than you’ll find anywhere else. And with our annual certification process, sellers are quickly able to identify buyers that would make a good match. So you can be assured that you’ll be able to purchase as many portfolios as you have appetite and funds for!

Another benefit of joining EverChain UK’s debt buyer network is that you’ll be able to use our advanced filtering tools, which allow you to easily identify the debt portfolios that are inline with your investment criteria. You can furthermore set up alerts which will notify you when similar portfolios become available to bid on.

If you’re thinking about joining a debt buyer network, we’ve outlined some of the key considerations below:

What is a Debt Buyer?

As the name suggests, a debt buyer is an individual or organisation that purchases debt from creditors. Generally, this would be older, defaulted debt, that the lender has attempted to collect, but was ultimately unsuccessful. This is often due to the fact that lenders are not experts in collecting bad debt, but are better versed in early stage collections processes.

debt buyer

Debt buyers can also be referred to as debt collectors, or debt collection agencies, as after purchasing the debt, they’ll be well trained in collecting the balances from borrowers. Debt buyers often have more flexibility at this stage than the original lender, so tend to have a higher success rate.

Another key thing to note about debt buyers is that they will purchase a debt portfolio at an incredibly reduced rate – often at pennies on the pound. This means that as long as they are able to collect a fraction of the outstanding debt, they should soon be in profit.

Why Become a Debt Buyer?

There are a number of benefits to becoming a debt buyer, though you should bear in mind that it does come with some level of risk. For this reason, many debt collectors choose to join a debt buying network, so that they have access to expert advice at all times.

One of the main advantages to purchasing debt is that you can buy portfolios for such a low price, thus if borrowers are making even small repayments, you’ll undoubtedly be making a profit. For instance, if you were to buy a debt of £500 for the price of £50, once you surpass a tenth of the due loan amount, the rest will be profit.

Another benefit of becoming a debt buyer is that you’ll often have more scope in the methods you can use for debt collection. An example of this might be issuing a County Court Judgement (CCJ), and perhaps an Attachment of Earnings Order (AEO) against a borrower. Not all lenders have a policy in place to take this course of action.

Why Do Lenders Use Debt Buyer Networks?

While the advantages of becoming a debt purchaser may be obvious, you may be wondering why lenders decide to sell debt, at a fraction of the price it’s technically worth. The main reason seems to be that lenders are not always as qualified to chase bad debt, and will therefore waste valuable time and resources doing so. It can actually be more cost effective to sell on the debt, rather than spend more hours trying to collect it.

Creditors furthermore choose to sell debt because it means they’ll be able to instantly reclaim some of their funds. And if they decide to sell through a network, the lender will also be able to save time searching for an appropriate buyer.

Having debt sale in a lender’s customer journey additionally means that there will be a real consequence for nonpayment. This should in turn encourage customer engagement, as well as increase the overall payback rate of the lender.

buying debt

Should I Join a Debt Buyer Network?

As with becoming a debt buyer, there are a variety of advantages to joining a debt buyer network. Perhaps the most obvious benefit is that it’s easy to find great portfolios, and you should be able to apply filters, which make the process even simpler. Save time and effort scrolling through individual buyer pages by looking in just one place!

With EverChain UK, you can additionally set up handy alerts, which will notify you when the types of debt portfolio you’re interested in are added to the network. You can easily compare options, and ensure that you’re purchasing a portfolio which you’re confident you’ll be able to make a profit from.

Another advantage of joining a debt buyer network is that you can speak with a team of experts, not to mention the fact that you’ll have access to insider knowledge. So if at any point you wish to discuss your account or your buying options, EverChain UK will be happy to help.

Debt for Sale UK

Looking into debt for sale in the UK? Here at EverChain UK, we work with a wide range of UK buyers and sellers, offering the largest selection of debt portfolios you can find anywhere. To help you get started, we’ve explored some of the key factors that make up debt sale below:

What is Debt Purchase?

As you can probably guess from the name, debt purchase is a way for lenders to sell on debts that have become overly time consuming, costly, or simply too difficult to recover inhouse. For the buyer, debt purchase offers an opportunity to purchase debts at a considerably reduced rate, and then make a profit once they collect a proportion of the debt.

debt for sale UK

Essentially, debt purchase is about matching the right seller with the right buyer. At EverChain UK, we do all that we can to make this process as simple and streamlined as possible. This includes providing tools such as filters, which allow you to identify portfolios that meet your investment criteria, as well as alerts, which will notify you when a suitable deal is listed.

Buying Debt from a Network

Within the financial services industry, there is an increasing focus on delivering the best outcomes for customers, treating all customers fairly, and being mindful of vulnerable individuals. Complaint handling is also becoming ever more important. With this in mind, it’s essential that when buying debt, you make an informed decision.

This is particularly true of portfolios that have come from firms that have since become insolvent, as although the loan books remain valid, they will be considered high risk. This is because typically, a large percentage of the portfolio will be customers that have been issued a default notice.

What is a Default Notice?

If you come across debt for sale where a default notice has been issued, you may be unsure as to what this really means. A default notice is a letter that is sent when a borrower falls behind on their repayments. It will give the debtor at least two weeks to bring their account up to date, and if they are unable to do so in this time, the account will default and further action could be taken.

Typically, a default notice is only sent out when less than the full amount has been paid for between three and six months. This does mean that even if contributions have been made, if the due repayments haven’t been met, a letter might be sent.

Types of Debt for Sale UK

Before purchasing a debt portfolio, it’s essential to consider what kind of debt you’re buying. Examples include personal loans, credit cards, bad credit loans, and payday loans. Some debt will be easier to liquidate or market, while others are more common, thus you can get a much larger portfolio. Make sure you do some research beforehand, and familiarise yourself with all the appropriate regulations and guidelines.

When buying debt, the type of loan isn’t the only thing that matters. You also need to evaluate the information you’re provided with by the debt sale network. While you probably won’t be able to see each individual loan in detail, you should be able to access the following information:

UK debt for sale

  • The original creditor or issuer of the debt
  • The number of accounts within the portfolio
  • The average balance of the loans
  • The total principal balance of all the loans in the portfolio
  • The purchase price of the portfolio

When you join EverChain UK’s certified buyer network, you’ll also be able to see things like payment histories, masked loan agreements, and seller due diligence reports. Not only this, but you can additionally review an analysis of the portfolio from major scoring companies.

UK Debt for Sale

When it comes to debt for sale, UK lenders are often keen to pass on older debts, as they would prefer to concentrate their resources in other areas. There comes a point where the creditor is spending more money chasing a debt than it’s really worth. Debt buyers tend to have more flexibility in terms of collections, and should thus be able to make a profit when purchasing a portfolio.

So how do you go about buying debt for sale? With EverChain UK, the first step is to join our network and become a certified member. Then, simply browse the portfolios on offer, and identify any that meet your buying criteria. You can analyse the portfolio, then submit your bid. Finally, once the offer has been accepted, you can use our post-sale management platform to resolve any issues or queries with the original lender. Get in touch with us today to discuss your buying requirements!

Debt Portfolios for Sale

If you’re looking into debt portfolios for sale, you’ll want to know you’re getting a good price, while also being confident that you’ll get a good return on your investment. This can be a pretty hard balance to get right, but there are a few things you can do to improve your chances! We’ve explored the topic of debt portfolios in more detail below:

What is a Debt Portfolio?

As the name suggests, a debt portfolio is a collection of debts that you can purchase, which can be a good investment opportunity. The idea is that you’ll buy the debts at a low price – usually at pennies on the pound – and that way, when debtors do make a repayment, you’ll soon be in profit. You don’t need to bring in a lot of payments to start making money, as you would have bought the debts at such a low price.

For example, say you bought a debt of £1,000, for the price of £100. You’re entitled to collect the full balance of the debt, so if you were able to do this, you’d have made £900 in profit. This may take some time, but debt buying can be incredibly lucrative.

debt portfolio

The Debt Sale Process

When it comes to the debt selling and buying process, firstly, lenders will put together a portfolio of debt they no longer feel able to collect. They would have issued a default notice to the borrower, explaining that further action, such as the selling of the debt, could be taken. The main reason lenders will sell such debts is because they are not specialists in arrears collections. Debt collectors may also have more flexibility when it comes to their collections methods.

Debt buyers will look at a number of different portfolios and identify the ones they wish to purchase. They’ll then bid on them, and once bought, they can then start the collections process. This may include taking the debtor to court and issuing a County Court Judgement (CCJ), along with an Attachment of Earnings Order (AEO). With an AEO, monthly contributions towards a debt are taken directly from the borrower’s wages, and are automatically sent to the creditor or debt collector.

What Sort of Debt Portfolios Are for Sale?

When looking into debt portfolios for sale, there are a few things you should think about. The initial consideration should be what kind of debt you’re interested in buying. As you can probably imagine, some types of loan are more popular than others, so you may wish to opt for a larger portfolio. Alternatively, you could choose a type of loan that is easy to liquidate.

The main thing is doing your research beforehand. You should find out more about each form of loan, as well as the financial industry in general, so that you can confidently choose a portfolio. Some of the most common types of debt include bad credit loans, personal loans, credit cards, and payday loans.

Details of a Debt Portfolio

Once you’ve decided which type of debt you’re interested in purchasing, you can then start comparing relevant portfolios. Usually, each portfolio will contain debts that share particular attributes, such as the time that has elapsed since the loan was defaulted. You’ll also be provided with other details about the portfolio, including:

  • The type of debt it contains, such as credit card debt, payday loans, or personal loans
  • The name of the creditor or creditors who initially owned the debt
  • The total amount of money that is due within the portfolio, sometimes referred to as the face value
  • The median debt balance
  • The number of accounts that are contained within the portfolio

You’ll also be told the price to buy the portfolio, or where bidding starts. As mentioned above, this is typically far below what the total debt is worth, so it should be relatively easy to make a profit.

debt portfolio

How to Find Debt Portfolios for Sale

With EverChain UK, it’s simple to find debt portfolios for sale! After joining our certified buyer network, you can start browsing our portfolio listings to find a suitable deal for you. You can furthermore use our advanced filtering tools to narrow down your search, ensuring you only see portfolios that meet your investment criteria. And if you can’t find exactly what you’re looking for straight away, you can set up alerts to notify you when the right portfolio becomes available.

Once you’ve found a portfolio that interests you, you can review it in more detail by looking at things like loan agreements, payment histories, as well as lender due diligence surveys. Then, simply submit your bid, which will be quickly reviewed by the seller. After the offer has been accepted, you can close the sale, and then use our post-sale management system to perform actions like communicating with sellers to request any information you need.

If you’re interested in buying debt with EverChain UK, you can visit our Debt Buyers page, or get in touch with us directly to discuss your needs.

Is It Better To Sell Debt Or Use Contingency Collections?

If you are a business lending money then it is an unfortunate truth that not all of your customers will make their repayments on time and you may need help with collecting your debts. The more quickly you attempt to recover debt on delinquent accounts, the more likely you are to receive payment.

If you are a business looking to collect on these debts there are several options available to you.

Typically debt is collected either in house or it outsourced by either contingency collections or a debt sale. It is relatively common for lenders such as banks and other loan providers for the collections process to be internal initially, before being outsourced at the point the debt becomes too costly or challenging to collect on.

However when it comes to outsourcing debt collection to a Debt Collection Agency there are a number of different arrangements that can be made with the collections agencies that can deliver vastly different results dependent upon numerous factors within your business.

Contingency Collections

If you’ve looked into debt sale before, or are already working in the financial industry, you may have heard of contingency debt collection. We’ve explored the topic in more detail below:

What is Contingency Debt Collection?

Contingency debt collection is where a Debt Collection Agency collects debt on behalf of a client where the fees are a pre-agreed percentage of the sum collected. In other words, contingency debt collection is a no win-no fee collections agreement where the client retains ownership of the debt but is willing to pay a fee for the successful collection of the past due debt.

Contingency Debt Collection

Why Use a Contingency Collection Agency?

Contingency collections can often be more lucrative for your business than collecting in house, as Debt Collection Agencies are a specialist recovery service. Although the agency only gets paid for successful collection efforts, their specialist methods ensure they are able to produce better debt recovery performance than many lenders are capable of.

Whilst your focus will be on marketing, credit risk, product development and many other important things – a Debt Collection Agency’s primary focus is on recovering payment from past due accounts. Most of their resources are therefore focused on collecting debt which means that Debt Collection services are able to focus on legal action and other time-consuming approaches.

Is Using Contingency Collections Expensive?

Contingency collectors may charge you a flat fee of anywhere from 25-50% of the money they collect on your behalf. Typically the more challenging a debt is to recover the larger you can expect the percentage share wanted by the Debt Collection Agency to be.

Some collection agencies work harder to recover the debt, and may also charge additional fees for account tracing or legal action.

Contingency collections work on a no collection no fee basis which means that the commission earned by the collector on the debts that are collected needs to cover all of their costs, including costs incurred on debts that they are unable to collect on.

What About Debt They Can’t Collect?

You should not only measure the success of contingency collections by the amount of debt recovered but should also remember that your debts are an asset on your balance sheet. If you wish to sell debt in the future the value could be seriously impeded by having placed the debts with a Debt Collection Agency previously so you need to weigh up what matters the most to your business.

You may also need to think about what you will do with accounts that are passed back to you having not been recovered and whether you wish to write these off or sell them to another debt buyer. Whatever you decide to do you should think about this at the earliest possible opportunity, as the debt ages it becomes more challenging to collect. It is therefore going to become worth less and less to a debt purchaser as time goes on.

Selling Debt

Selling your debt to a Debt Collection agency is perhaps the simplest way to manage your non-performing loan assets as the price is fixed and you can easily decipher what a proposed purchase price means to your business.

What is a Debt Sale?

A debt sale is where you take debt(s) and sell them to a debt buyer, who buys the accounts and takes legal ownership of them. As such when a debt is sold it is no longer owed to you and the debt is now owed to the debt purchaser. Typically offers are made in pence against the pound terms, in other words an offer is made to pay a fixed percentage of the face value of the debt. This offer is typically based on what the debt purchaser thinks they can collect from the debts and what it will cost them to do so.

Debt Sale

Why Should You Sell Debt?

Debt sales are so popular because they provide certainty and security to the selling business. Using a contingency collector can prove fruitful but is also a risk. If the contingency collector does not collect as much as you hoped then the damage to the purchase price of these debts may already be done, despite you having not got the returns you had hoped for from contingency collections. Selling debt is at an agreed price which is fixed regardless of how much the debt purchaser is able to collect from the accounts.

A debt sale can be done on a portfolio of aged accounts and/or agreed on future accounts. A forward flow agreement allows a price to be agreed on debts that fall past due in the future and can give you the stability to grow your business.

Debt sales can also lift a large burden from the balance sheet by removing the need for far past-due provisioning and providing a cash injection to allow you to improve your product offering or acquire new customers.

If it is this security that you after then a debt sale may be right for you.

What About My Brand Reputation?

Protecting your brand is important because it helps your business to acquire new customers and stand out within your industry. It is important to consider your brand reputation whether you are managing your non-performing loans in house or utilising a Debt Collection Agency in any way.

Just because you look to sell your accounts does not mean the Debt Purchaser can then collect in any way that they wish. Prior to agreeing to a sale, or contingency collections placement, you should review the debt collector’s processes to ensure that you are comfortable with them.

If there are parts, such as court action, you would sooner avoid being used in order to protect your brand then you should make this clear.

Most Debt Collection Agencies, whether on a contingency or purchase model, will adhere to your requests and work with you to refine the process to suit your needs. Just keep in mind that the harder it is for the purchaser to collect on the debt(s) then the less favourable the commercial terms may become for you as the seller.

Summary

If you have debts that you are unable to recover yourself it is important to act fast. The longer you leave it the less you are likely to receive from contingency collections or debt sales.

Talk to us today for a free consultation and see how we may be able to help you better manage your debt portfolio.

How To Value A Loan Book To Get The Best Price

Assuming your business model is to lend money to people, whether that’s high cost short term credit, or car finance, you may have encountered that a portion of your loan book are non-performing accounts. This causes a particular concern for a lender, because a majority of the business’ value is made up of the outstanding debt.

Where a cash injection is needed, or operational resource needs liberating, the finance provider could conduct a debt sale: where they sell the ownership of the accounts where they have been unable to collect the outstanding balance.

A debt sale can be a brilliant method of relieving a business of a non-performing portion of their portfolio, but it’s also important to ensure you benefit commercially from it. Prior to agreeing a debt sale agreement. you should always value your loan book to understand how much you could get for it.

The Process of Selling a Loan Book

Before you go ahead and undertake the complex process of selling your loan books, it’s a good idea to understand how it works. Put simply, a debt sale is where a lender sells their arrears accounts for a fraction of the price to a third party, usually a debt collection agency, to collect on them. The third party then assumes ownership of these debts and can attempt to collect the full amount.

Debt Collection Agency are specialist businesses that have the resources to collect debts more efficiently than some lenders. They use legal action and more rigorous tracing exercises to open a line of communication with a customer and reclaim the owed money. A collection agency’s business model means they can afford to spend a longer time attempting to collect the debt.

You can learn more about how a debt sale works on our dedicated guide.

Debt Portfolio

Examples of When Loan Portfolios are Sold

What reasons are there for selling a loan book? We’ve explored this topic in more detail below:

During Financial Hardship Or Administration

Selling a portion of your loan book can help you ride the financial pressures by getting an instant cash injection. As well as this, if the company is entering administration it makes sense to reclaim the money for the business’ creditors by selling their loan portfolio.

An example of this recently is where the payday lenders like Wonga had been forced into administration due to the rise in customer compensation claims made against them. Due to the amount of money owed to the business’ creditors, instead of the administrators attempting to collect the money, they could sell the accounts to a debt collection agency instead.

When a company has entered into administration the whole loan book can be sold; which includes both the non-performing accounts and the accounts that are actively making repayments.

To Prepare for a Business Sale

A lender may be on the verge of being sold to a buyer so that they can acquire the lender’s customers, but that does not mean they also want to purchase the non-performing loan book. A buyer looking to acquire a financial provider could be put off by the volume of arrears cases that accompany it.

Therefore, to avoid negotiating a price that includes the segments of non-performing accounts, the lender could sell this portion of their credit portfolio in order to secure a more certain valuation of their business.

What Affects the Price of Your Loan Book?

If you’re asked “how much does it cost to buy debt?”, the answer is simply that it depends.The price of your loan book is determined by a variety of different factors, and is particularly affected by how much the buyer would be expected to collect and profit. This is a list of some of the factors that can affect the price:

Are the Loans Unsecured or Secured?

A secured loan makes it easier to recover the debt as if the debtor does not make the required payments against the debt then the asset can be repossessed and sold to help pay off the balance owed, which can improve the sale price for secured loans when compared to unsecured loans.

However sometimes security is requested because the applicant is less creditworthy and in this instance both of these factors need to be taken into consideration when valuing your debt portfolio.

What is the Affordability of the Debtors?

If your debtors are earning more money than they spend they will have a positive disposable income. Whilst these debtors will not necessarily by any easier to engage with they should provide better results where engagement happens as they can likely afford to pay the debt off in a shorter amount of time which deleverages the Debt Purchasers risk and reduces the risk of the debt being written off for insolvency. With reduced risk for the purchaser will also come a greater purchase offer.

What Other Data Points Have You Traced for the Debtor?

If you’ve managed to trace extra information to the debtor such as a new address, then the debt buyer is likely to spend more money on that data as it reduces the casework for them.Typically Debt Purchasers will conduct a tracing exercise on a debt where they do not hold the debtors up to date contact information. Keeping your customer’s contact details up to date can reduce the work for a Debt Collection Agency, saving them money that can be used for the purchase from you instead.

Has the Loan Book Been Previously Passed to a Contingency Debt Collector?

If a debt has been outsourced to debt collection agencies previously then this can make it harder to recover the debt as the debt collector is likely to have utilised several of the ‘quick wins’ to collect the low hanging payments from the loan book.

When Did the Debt Originate?

The sale value of outstanding debt depreciates over time, as typically the more time that has passed since the debt was owed the more challenging the debt is to collect on. The older a debt is the more important it is to have a strategy in place to deal with this before debts become statute barred.

What is the Past Payment Frequency Made on the Accounts?

How reliable the debtors are at making regular payments will affect the price of the data. Accounts with no payments on are more likely to be fraudulent and yield no collections also which can further decrease the value of your loan book.

EverChain debt sale

When Was Contact Last Made With the Debtors?

The longer it has been since the original creditor was able to make contact, the more work the debt buyer will have to put in to trace the debtor. Address and contact information changes may have happened since your last communication.

Where Do the Debtors Live?

The debt recovery process varies across the UK and this can affect the value of your loan book. The court process in Scotland is significantly more expensive than in England and as such can mean that it is more expensive, time consuming and challenging to collect Scottish debt which can reduce the value of your loan book.

How Much Do Debt Buyers Pay for Debt?

Essentially, a debt purchaser will only pay for data that they expect they can make a profit on. However, a debt buyer will pay for the quality of the data being sold, so they will categorise each line of data based on the facts about the debt that we’ve outlined above.

Many of the large debt collection agencies that buy loan books have developed algorithms to help them generate an accurate valuation of the portfolio. Despite the algorithms being potentially complex, it simply all boils down to how likely they are to collect the outstanding debt. Debt purchasers calculate the price by using machine learning to compare the data points attached to previous accounts where they successfully collect payments.

Aside from a debt purchaser’s calculation algorithms, the price that they pay will also depend on their business’ appetite to take a risk. The higher their risk appetite, the more likely you are to get a higher price.

The primary assessment a Debt Purchaser will use to evaluate your loan book will be to check how many of the accounts they already have in their system. If a data deduplication check shows that the purchaser has previously collected payments with a portion of the loan book, then this will improve the asking price. Therefore it’s important to know which debt buyers to approach.

Why Using a Broker Can Improve the Valuation

Identifying the right debt purchasers to sell to is key to getting the best price for your loan book. The debt purchasers who have a higher number of successful similar or matched cases are much more likely to offer you a higher price to acquire your debt portfolio.

EverChain UK can help your business if you have debts that you are unable to collect yourself. If you need guidance and advice on how to approach a debt purchaser, we have an extensive financial background with several years experience in debt collection, lending and credit brokering.

Remember, the longer you leave it the lower the price you are likely to receive from contingency collections or debt sales. Talk to us today for a free consultation and see how we may be able to help you better manage your debt portfolio.