A debt collectors' boom hints of a possible sag for business in general
Daniel Silver's business is going Gangbusters. April was the biggest month in his company's 61-year history. May figures are coming in even stronger.
Unfortunately, a boom for Mr. Silver might portend a bust for the economy overall.
As president of Bruhnke & Silver, he presides over the business of chasing down corporate deadbeats -- mostly for Fortune 1,000 companies. His firm, recently acquired by Dun & Bradstreet, is arguably the second-largest commercial debt collection agency in the country.
When a credit department tires of chasing an overdue account, it often turns to the experts. In April, companies flocked to Silver's door and placed 37 percent more claims than in April 1984. Early tabulations of last month's claims show a 24.5 percent rise over the previous May.
``I haven't seen numbers like this since the last recession,'' Silver remarks . He's not predicting a recession, mind you. But he finds the numbers ``significant.''
So far this year, the economy has been quite sluggish. But the consensus of economists is that falling interest rates will spur business in the second half of the year. Most predict a 3 percent growth rate.
Debt collectors are hesitant to contradict this outlook. But Gordon Calvert says, ``In the past, the jump in claims has been a pretty good leading indicator in reverse: When our volume is up, the economy is heading down.'' Mr. Calvert is executive director of the Commercial Collection Agency Section of the Commercial Law League of America. The industry group represents 80 to 90 percent of corporate debt collectors, Calvert says.
The trade group reported a 15.3 percent jump in commercial claims placed with members during the first quarter, and the trend appears to be accelerating. Calls to leading commercial debt collectors indicate a continuing rise in debt shirkers over the last two months.
For instance, United Mercantile Agencies, based in Louisville, Tenn., has seen a 21.4 percent jump in claims during the first four months of this year.
Sales vice-president Jack Moran won't make a prediction about where the economy is heading. But he remarks, ``We're usually already in a recession when we see numbers like this.'' And he ``gets the impression'' from his Fortune 1,000 clients that the percentage of accounts receivable over 90 or 120 days is rising.
Why are more businesses holding back on their payments to suppliers?
One possible reason is that the economy looked more robust in January than it does now. Some stores took on more inventory than normal in expectation of strong sales.
``Many retailers and jobbers are stuck with a higher than desired inventory position,'' says Richard W. Kopcke, vice-president and economist at the Federal Reserve Bank of Boston. ``They planned on having the cash by now.''
Caryn Berkun of American Bureau of Collections, based in Buffalo, N.Y., suggests that back when the economic outlook was rosier the piling up of inventory may have been encouraged as manufacturers ``got a little free with their credit extensions.'' Her firm reports a 28 percent jump in claims through April.
And Mr. Kopcke says, ``You would expect bill collectors to be active in a recession and during an industry shake-up.'' The manufacturing sector -- responsible for much of Bruhnke & Silver's business -- has been hit hard by imports. The continued strength of the dollar against foreign currencies gives imported goods a price advantage. ``No doubt companies competing with foreign goods are feeling the pinch and might be slow in paying their bills,'' he says.
Another possible reason for the delinquent debts: Slower than expected retail sales due to the computer-related delay in Internal Revenue Service refunds. Perhaps the cash flow of retail stores has also been squeezed by the heavy use of credit cards by consumers.
Mr. Moran and other debt collectors say the job of bringing in overdue commercial debts has not become especially difficult yet. Shop owners and distributors may have the funds but may be delaying payments as long as possible because of a feeling of uncertainty about future sales.
Uncertainty about the tax-reform program and the direction of the economy is delaying investment decisions, Daniel Silver agrees. ``And these uncertainties are being reflected in our figures.'' He adds somewhat ominously, ``If these figures continue through June and July, it would be very indicative of a slowdown.''