Facing Shortfalls, Calling In Old Debts

Even libraries are getting in on the act. Public libraries in Staunton and Waynesboro, Va., west of Charlottesville, last year began referring to collection agencies any unpaid library fees that exceeded $25 and were delinquent for more than 42 days. Since 2003, these and other libraries in Augusta County have lost more than $100,000 from unreturned items. That figure represents more than half of the county's annual budget for new library materials.

While some companies and governments pay a fee to a collection agency to manage delinquent accounts, others sell their bad debts to get immediate cash. Credit card issuers usually sell their bad receivables, while telecommunication, health-care companies and others tend to hire a debt-collection agency, betting they'll get more money.

Ginsberg said Montgomery County, one of the wealthiest counties in the country, recently sold about $5 million in tax debts of residents and business owners to debt purchasers, which buy the accounts and own the debt. They keep what they collect. Prince George's County recently sold about $14 million in tax debts, up from the $10 million it put up for sale in 2007.

Companies are also cracking down. Ginsberg said that these days, companies won't wait 90 days to hire a collection agency. Instead, many are going after unpaid bills after 60 days or fewer. In a healthy economy, companies might not try very hard to collect those bills because it can be costly. Or they might write off the uncollectible receivables from their books completely.

But now, with cash tight and business slowing down, companies are going after the bad debts to raise needed cash. They are going after the receivables even it if means getting just 10 cents on the dollar.

"We tell them they have to be fluid," Ginsberg said. "They need to recognize these are challenging times. You have to communicate earlier with a debtor and not be combative."

Ginsberg said he will give the same advice to the parties that will aim to collect hundreds of billions of dollars in unpaid debt left in the wake of the economic meltdown.

"Like all significant economic change, it creates opportunities for those who have the stomach to deal with it," he said.

In a healthy economy, most people tend to pay their bills pretty quickly. In a downturn, they find excuses. Result: The collection industry, whose revenue is based on how many delinquent bills they can collect, suffers in a recession because it's simply harder to collect the bills.

"People tend to think the collections industry is recession-proof," Ginsberg said. "The only things that are recession-proof are death and taxes. Debt collection is recession-resistant and tends to lag behind the major indicators. It goes into recession later and comes out quicker."

On the other hand, he said, "the collection industry is a very good barometer of economic conditions when we come out of the recession because you can tell when people are working, paying their bills and spending again."

Thomas Heath's "Value Added" column focuses on Washington's entrepreneurial set. It runs weekly on the WashBiz Blog athttp://www.washingtonpost.com/washbizblog.