Efficiency gains will meet IVA demand
Is there sufficient capacity to deal with the recent surge in individual voluntary arrangements?
My view is that it will take a different, more specialist approach for IVAs
to serve the needs of creditors and people in debt.
According to our own research, 70% of respondents felt there was less social
stigma associated with being in debt these days. Consequently, people are
borrowing increasingly large sums on their credit and store cards, but seem less
worried about how or when they can pay the debt back.
With cheap and freely available credit, and society’s ease with debt
generally, we expect more and more people to choose an IVA to restructure their
debts.
By 2007, we could have as many as 60,000 in existence – a sharp increase from
just 6,000 in 2003 and more than 20,000 last year.
Let’s face it, we must act more strongly in the interest of creditors
because, so far, too many IVAs have under delivered. Why? First, creditors have,
until recently, regarded IVAs as an insignificant feature of debt collection
because their numbers have been small.
Secondly, IVAs require a different mental approach to the work normally
performed by a traditional insolvency practitioner. The work needs to be
performed in a systematic rather than bespoke way. They must be supervised
closely. Typically, an IVA lasts four or five years, and such close attention
makes a significant difference to its performance.
I am also staggered by how many practitioners haven’t introduced the computer
systems necessary to handle IVAs efficiently. I am not worried about industry
capacity issues, because IVAs are crying out for so many old-fashioned paper
processes to be replaced by modern IT systems.
For example, currently almost all insolvency practitioners pay dividends by
cheque. Creditors receive numerous small cheques – these are expensive for the
insolvency practitioner to produce and send and for the creditor to receive and
process. If dividends are automated, creditors and insolvency practitioners will
both benefit from efficiency gains.
Insolvency practitioners should rely less on fees based on time charged and,
as debt recovery specialists, focus on delivering value to creditors as well as
debtors.
If we are more efficient, creditors will value more highly the contribution
we can make in recovering bad debts.
Greg Mullarkey is chief executive of W3 Debt Solutions
