Servicing
Also known as portfolio servicing, third-party servicing, receivables administration
Servicing means administering and collecting a portfolio of claims for whoever owns them — without taking over the claims yourself.
- Claims owned by
- The client
- Servicer provides
- Collection and administration
- As distinct from
- Buying the claims
In practice
There are two ways to get a portfolio collected. Either you sell the claims and leave the rest to the buyer — the loss is then realised and the upside is somebody else’s. Or you keep them and have someone else administer and collect them on your behalf. The latter is servicing.
The difference is who carries the risk. Under servicing the claims stay with the owner, and the servicer’s fee attaches to the work or the result. That gives the owner all of the upside if collection goes well — and all of the downside if it does not.
The arrangement therefore stands or falls on what gets measured. Without agreed reporting and an agreed service level it is hard to judge whether the work is being done well.
Where it commonly goes wrong
- No reporting is agreed. Without running figures, poor collection is discovered only when the year is closed.
- Choosing on price alone. The difference between two servicers lies in the recovery rate, not in the fee.