Law firms battle for top spot in collections outsourcing. Antonio Fabrizio reports.
Several law firms have responded to the increasing demand for outsourcing services by investing heavily in collections services.
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Leamington Spa-based law firm Wright Hassal is about to launch a full-service collections and recoveries business for motor, asset and property finance clients.
National law firm Shoosmiths, meanwhile, is ramping up its existing collections business, and has appointed Kevin Parker, who recently joined Shoosmiths’ partnership, to run this department.
Parker now works alongside Joanne Davis and Roger Potgieter, the law firm’s partners for asset finance and motor finance respectively.
These take their place on a growing list of law firms engaged in collections activity, including HBJ Gateley Wareing, which offer this service in Scotland, national law firm Irwin Mitchell and Sussex-based firm Thomas Eggar.
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By GlobalDataEarlier this year, Wright Hassall hired Gillian Payne as head of client portfolio management and collection solutions. Payne reports to Sarah Perry – who heads up Wright Hassal’s lender solutions team, with 37 staff under her management.
Before joining Wright Hassall, Payne – who has over 30 years’ experience in collections – worked with Shoosmiths, which has operated a collections business in the asset and motor finance sectors for the past five years.
Alongside Payne, three others have joined Wright Hassall from Shoosmiths: Steven Slatter as a solicitor, and Danielle Payne and Nicole Jackson as account collectors.
Shoosmiths recent arrival, Kevin Parker, who has 26 years of collections experience, including acting for the captive arms of Peugeot and Citroën, has 40 staff reporting to him.
A further 25 staff at the firm’s litigation department, all of whom report to Davis and Potgieter, are also available to assist Parker’s collections activity.
Shoosmiths and Wright Hassall say they have developed business models that enable leasing companies to outsource their entire collection activities to the law firms, transforming them, in effect, into external arms of leasing companies.
“We like to think of ourselves as an extension of lessors’ in-house teams,” Payne said, adding that she expects her team to be in daily contact with her lessor clients.
“If you are managing a lessor’s portfolio, then there should be a daily exchange of data which would happen automatically via the system,” she said. “What you are doing has a direct impact on their business, because you in effect become them, so their targets become your targets.”
According to Parker, much of the outsourcing process depends on what the leasing company and the law firm have agreed to in advance.
“If a lessor wants to outsource an element of their collection activity to Shoosmiths, we take a holistic approach. They would sit down with us in advance, and specify the kind of process outline that they would like to see,” he said.
However, he added, a number of lessors leave it to a law firm’s experience to take that element forward and develop it. For that reason, a key element of the relationship is the “absolute trust the lessor puts in us”, said Parker.
“For some clients, we would act in their name for the first part of any collection cycle. Then, of course, we would change it to our own name at an agreed point to highlight the urgency of the matter,” he added.
From Wright Hassall’s perspective, the firm would “prioritise according to the client instructions, size of debt and exposure”, although it is “usual practice to concentrate on the 100 highest balances”, said Payne.
Significant advantages
Commenting on the reasons why law firms are well suited to collections activity, Payne pointed to their proven track record in reducing arrears and internal fixed costs, their fully-trained and competent account managers, and their ability to take on large volumes of cases at very short notice.
“We can act as an invisible partner or as a firm of solicitors,” she commented. “In a way it’s got to be a lessor’s dream, because they don’t have to be worrying about the changes in regulations – that’s what we are really good at, being ahead of the game.”
For Parker, if a lender chooses to outsource the management of their portfolios, “they are taking the view that their primary business is lending money on an asset-based or motor-based portfolio, as that’s what they are experienced in”.
Shoosmiths – which said it is constantly being invited to tender by asset and motor finance companies – has often found that lessors’ back office functionality was old-fashioned, and “with no real investment in technology”.
“We think that the real advantage for any lessor is that we can instantly have an impact to the bottom line, because we have such significant experience in debt collection and we can instantly add that to their process, whereas for them to go and recruit experienced staff takes a significant period of time,” said Parker.
His colleague, Potgieter, added that behind Shoosmiths’ expertise there lies the ability to “offer specialism”.
He has specialist knowledge of motor finance and regulated agreements – having worked in the sector for 12 years, including with GMAC – while Davis has specialist knowledge of asset finance with more than 14 years’ experience.
Just like lessors, a key issue law firms face in the context of collections is handling customers that fail to pay their monthly rentals on time, or at all.
According to Payne, in response to this situation, her collections team would launch an “escalation strategy” which first starts with a letter and a telephone call to the client.
If less than one-third of money owed is outstanding, Payne added, her team would refer the matter to a repossession agent. If more than one-third is owed then her team would launch litigation.
She said: “If we are unable to obtain settlement, then we look to agree a sensible monthly arrangement. The collections team is highly trained in making commercial decisions as to whether it is cost-effective to sue or not.”
The worst-case scenario – a company going into insolvency – means that the law firm is already there to try and act as quickly as possible to recover the assets. Very recently, Shoosmiths was able to recover, for a large motor lender, its stocking units from a dealership that had just collapsed.
Parker explained that having acted promptly, Shoosmiths was able to recover all the vehicles and sell them quickly, having agreed with an auction house to be open during a weekend.
He explained: “The vehicles were disposed of and the account was dealt with, whereas we know that another lender involved still hasn’t recovered its vehicles. This shows that we can add real benefit to this type of process.”
The law firm’s involvement can become particularly important in fraud case scenarios, especially if the asset goes missing or is in another jurisdiction – a situation where international connections might come in handy.
Wright Hassall has got contacts across Europe, and uses a firm of repossession agents operating in Italy and Spain. It also has contacts outside Europe, including in Canada and Australia, which allow it to “track most things”, said Payne.
Shoosmiths, on the other hand, has recently dealt with a fraud case against a captive – where fraudsters had taken six high-value vehicles out of the UK.
The captive’s fraud team was able to track the assets though Germany into Northern Cyprus, where Shoosmiths’ legal intervention enabled its client to gain an injunction preventing Northern Cyprus port authorities from releasing the vehicles to the fraudsters.
“The way we do that is through a network of legal connections throughout the world,” Potgieter said. “We don’t have offices in Cyprus, but we are able to liaise with lawyers over there to get the necessary processes in that jurisdiction under way to protect our client while the case is ongoing.”
Parker added that this network of connections has proved essential in situations where identifying the asset is more challenging.
“While vehicle identification is quite straightforward due to the identification chassis number, the difficulty is with more complex, non-motor assets such as construction equipment,” he said.
Dealing with repossession agents is another area where law firms might be more experienced than leasing companies, Payne said.
But she warns that “as you need to get to know your customer, you really need to get to know your agents, and there’s got to be a huge amount of trust. They are representing you and your client, so anything wrong, has repercussions on that.”
All these reasons might well support a viable collections model for the future of many lessors. Now the question is: will leasing companies adopt it?
