Providing access to capital is an essential part of helping growing businesses thrive.

However, the risk of default is the top issue for most financiers. Charge-offs are the #1 expense for lender and financing businesses due largely to the inefficiency and cost of traditional avenues like court proceedings and collection agencies.

Fortunately, alternatives exist that can significantly improve recovery rates while reducing time and expense. These methods offer faster, more cost-effective, and amicable resolutions for both parties.

Case Study: New Era ADR

Scenario 1: Contingency Collections 

After initial attempts to resolve, 100% of default accounts are sent to contingency collections agencies or law firms, which recover an average of 20-40% while charging a 30-40% commission on the recovered amount.

Scenario 2: New Era ADR Arbitration & Mediation

As soon as an account is in default and unresponsive to initial outreach efforts, an Arbitration is filed, pursuant to the agreement in the original financing agreement¹ . The filing process is virtual and can be completed in under 10 minutes.

The recipient is notified, both of the pending arbitration along with an offer to mediate a resolution as an alternative. They will have the ability, if they desire, to have the case heard before an unbiased, qualified third-party Arbitrator, and have full due process of law. They also have the option of a more informal guided settlement discussion to resolve the issue independently. 

Typically the weight of pending litigation is enough to re-engage a debtor, either on the original terms or on a modified repayment plan at 70-80% of the original value.

For those that choose not to respond, a Default Award may be issued in the financier’s favor, typically within 30 days. The award is legally binding and court enforceable, enabling options like asset and property liens and wage or bank account garnishment ². The award can also be sold, typically for a higher rate than a standard collections agency, due to the enforceability of the award. This scenario uses a typical blended recovery of 40%. 

Outcome

New Era ADR works on all inclusive flat fees, starting at just a few hundred dollars. In this scenario the cost of recovery was reduced from $83,000 to $6,250. 

The impact of pending litigation, along with the impact of the legal judgement, improves the recovery from $230,000 to $600,000, either through voluntary loan modifications or legal enforcement. 

The net result is an incremental increase of $446,750.

While efficient and easy to use, New Era ADR’s Arbitration rules and procedures are comprehensive, compliant, and equitable. Each side has an accessible and affordable opportunity to tell their story and have a decision issued based on the merits, quickly and painlessly. As a result, the final decision is fully enforceable, but they also have options to settle the dispute amicably in advance. 

Click here to explore how you could increase recovery rates and reduce cost.

¹ Requires a pre-existing arbitration clause agreed to by both parties in the financing agreement or loan contract

²Pursuant to rules and procedures of the relevant state or local judicial branch