If it is your responsibility to improve profits for your bank, chances are you haven't much time to think about the old, uncollected account that you wrote off 12 months ago.

Most institutions stop keeping records on these accounts, not even bothering to add monthly finance charges as agreed to by the debtor.

There the files sit, stacked in boxes along with other outdated records, gathering dust, someday to be discarded as worthless paper.

But consider what happens to all the uncollected debts owed to banks, retailers, hospitals, and other industries.

Flecks of Gold in the Dust?

Unpaid debts of defunct business alone totaled $108.8 billion in 1991, according to reports. For some lenders, these boxes can represent millions of dollars.

Many creditors are doing everything possible to collect on delinquent accounts. As a last resort, they employ outside firms to collect the debt.

Some lenders try switching accounts from one collection service to another. Yet bad-debt losses continue to accumulate.

What happens to these accounts after everyone gives up? The answer, often, is nothing at all.

But there is an alternative that has been illustrated in the aftermath of the savings and loan debacle.

Emulating the RTC

The Resolution Trust Corp., charged with selling off assets of failed thrifts, is auctioning billions of dollars in distressed loans, grouping the nonperforming loans and offering them as package deals.

The RTC has raised the awareness of the debt collection industry as to the immense size of the writeoff market, encouraging banks and other lenders to unpack the boxes, calculate earned finance charges, and sell what was considered worthless paper for hard cash.

If you're considering selling your portfolio of written-off accounts, you should know that prices for them can vary widely.

Factors affecting price include the age of the account, the location of the debtor, the balance, and the type of loan.

Hard Line Not Realistic

Most companies with distressed portfolios are tempted to drive a hard bargain and have not assessed the realistic value of the nonperforming loans.

During its initial offer of distressed portfolios, for example, the RTC received a cool response from investors, because the agency had set unrealistically high minimum bids for these loans.

Over time, however, the RTC has learned to value these transactions based on their expected yields.

Today, RTC auctions of distressed loans tend to create an exciting bidding process as investors vie for the portfolios.

The amount paid can range from one-sixteenth of a cent to 33 cents on the dollar of the principal, plus interest.

Clearly, lenders are receiving cash for an asset previously deemed worthless, while collections firms are willing to assume the risk because they have confidence in their recovery resources and expertise.

Timing Is Right

The market for selling bad debts has yet to reach its peak, which is why it makes good business sense to repackage now those debts your bank has accumulated over the years.

Lenders have an option to either continue working delinquent accounts, perhaps at a significant loss, or to sell them for cash and get on with their primary focus.

If your credit management team is bucking the odds and spending good money chasing bad accounts, perhaps it is time to test your strategy against the marketplace.

You may find the market ready to turn your dusty files into cash.

Mr. Wallace and Mr. deMayo are partners in an Atlanta-based recovery management firm, Wallace & deMayo P.C.

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