Soft-touch debt collector shines ::

Author: Peter Switzer
Date: 21/08/2007
Publication: The Australian

AS markets tremble with concerns about the credit markets, a local listed business is poised to succeed whether markets go up or down.

The reason for its strong position is its new take on creditworthiness and the all-important customer service.

Credit Corp could be called a debt-collection company but CEO Geoff Lucas prefers it to be known as a receivables management company.

This is not just a euphemism, he argues.

This business was planned to be different from the outset. It was thinking outside the square -- classic Edward de Bono stuff.

With credit-card and personal-loan applications going through the roof and consumer debt in Australia at its highest level in decades, Credit Corp opted for an innovative concept in debt collection.

"From the outset we saw an industry that not only offered enormous growth prospects but also the opportunity for significant structural change, and so we set ourselves a number of corporate objectives," he says.

"Critically, we wanted to create a customer-service-focused workforce that works on building long-term relationships with "our customers" rather than applying the old school-bully tactics to a debtor," says Lucas.

The vast majority of Credit Corp's staff, including senior management and executives, have come from outside the industry.

The goal was to take a fresh, customer- and relationship-based approach to recovering unpaid debt.

"We acquire customers from the banks and we had a choice to ride them hard to squeeze out the money or to try to help them repay their debts," Lucas explains.

"If we are able to rehabilitate our customers, they not only repay their debt in full and help our bottom line, but importantly, we have positively impacted them, long-term."

And how do those in financial trouble react to debt collectors with a desire to repair their personal balance sheets?

"We have seen some element of surprise from our customers -- not debtors -- when we engage with them in a more collaborative, relationship-centric manner," Lucas admits.

There's evidence of the operation's success in the company's share price, which has steadily grown from 50c at listing in September 2000 to around $10.50 at current levels. It went as high as $12.90 before the recent market correction.

Roger Montgomery from Clime Asset Management was an early fan of Credit Corp.

"We began purchasing shares in Credit Corp around $3," he says. "We were offered over 300,000 shares in one line from a founding shareholder at the time when there were about 5000 shares traded per day.

"Our valuation was over $4.50 but shortly after our initial purchase the shares fell to $2.55 ... we continued to buy although the shares went back to 'trading by appointment'."

Lucas recognises the strategy behind the success, but also thanks his staff for taking their innovative approach to the customer base.

Like any company, Credit Corp needs an acceptable return on capital, and Lucas says the best way to achieve this is by being customer-focused.

"This necessitates a successful relationship with our customers, and the best way to achieve this is through a high calibre, positive workforce, committed to customer rehabilitation," he says.

The number crunchers at Clime have long seen a couple of reasons to back Credit Corp.

"The bright prospects were covered off by the fact that banks were offering their debt ledgers up for tender, but were suffering poor feedback, as the highest bidder needed to employ aggressive tactics to recover the outstanding debts," Montgomery says.

"We believed that a niche existed for an operator with an unblemished reputation to begin fostering longer-term relationships with the banks and ultimately become their preferred supplier."

Montgomery also believes the consumer boom in Australia will lead to an increase in debt ledgers available for collection.

He also believes Generation Y will be considerable contributors to his company's growth -- which is why he likes the cause of debt rehabilitation.

When the sub-prime problems, sparked by poor debt standards, took grip of global equity markets, Lucas was abroad doing a spot of work with Macquarie Bank.

"While we were in the US we visited with a few of Macquarie Bank's Australian equities sales-desk clients and ran through an investor presentation to introduce our business to a few US investors," he said.

In a sense, this outfit has done well in good times and so has to be well placed if the sub-prime financial troubles hit the real economy and create more potential "customers".

Back to articles