Credit management is very new activity in Ukraine which is usually associated here with debt collection and credit reports only.
Being very new business for Ukraine debt collection became the scene of social disputes and hard competition in 2010. Despite of only 20-25 companies do it seriously, a dozens of former legal and security companies declare they are debt collectors; this causes unbelievable mess on the market. It also promotes public opinion that debt collectors are “men with baseball bites”.
The most companies deal in B2C debt collection and only several ones are involved in B2B. B2C is quite developed despite of it started in 2005-2006 only. Now B2C collectors have association of collection business of Ukraine (ACBU), promote bill about licensing of collection business and what is important make debt purchase of consumer portfolios. The main clients in B2C are still mostly banks, despite of many agencies try to work with municipal debts and insurance companies.
Despite of bad public opinion serious companies work legally and by civilized methods. Professional call-centres and good skip tracing specialists are now the main instruments of collection companies. When in 2007 – 2008 everybody was concentrated on field visits and hard collection, now the most companies prefer to buy debts and then restructure or discount them.
In August 2009 government allowed tax remissions to banks and owing to that debt purchase became possible and reasonable business (but most likely not profitable – for now) in Ukraine.
Now nearly 7 companies have separate daughter legal entities – debt purchase funds – and money to purchase debts. However smaller debt collection companies in Ukraine are not able to create debt collection possibilities because of huge startup costs – from 500 000 USD, necessity of registering financial special vehicle and getting license for factoring. Despite of sums of sold portfolios vary from 6 to 125 millions USD the prices are very low, 0.4 – 7% only. It is mostly related with bad quality of portfolios (huge overdue 1-3 years and double or triple previous processing by bank’s and outsourcing collectors). However, it is obvious that nearest future of Ukrainian B2C is in debt purchase.
Lack of work caused by freezing of crediting struck big B2C companies seriously (and now is killing smaller ones) and made them fight for the market share. Now the main instrument of competition is war of prices, but it is undoubtedly that war of prices can’t last for a long time and very soon it transforms in fight for quality which is good for market in general.
B2B (or more popular in CIS term “corporate debt collection”) is more interesting segment which is still almost empty. Big companies don’t like to go in B2B because of low profits and unprepared market. However, some large B2C companies tried to enter to this segment but unsuccessfully for now, mainly because they tried to work in usual for B2C manner and collect corporate bank loans. So far the main players in this market are companies like GCS, Coface and 2-3 local ones which specialize on B2B; the main clients are SMB wholesale trading companies, exporting and importing companies.
B2B collection faces to a lot of problems like lack of qualified personnel and bad Ukrainian court and execution system. In addition social factors like hostility towards collectors and usual practice to go to lawyers with all debt problems make promotion of B2B very hard.
It is worth to pay some attention to Ukrainian legal system which is quite ineffective. The weakest chain in it is state bailiff service which is weak and always overloaded: it collects nearly 9% of all sums placed only. Long term of legal proceedings is not something unusual for the most countries, but in Ukraine usual term is 3-12 months for court sittings and 12 and more months for execution. Necessity to “motivate” officers in the most governmental bodies also strikes on legal collection effectiveness and costs.
Credit reporting is not very developed in Ukraine. Few providers are represented by international companies like GCS, IGK, Coface, Dun&Bradstreet and work mostly with international inquires about legal entities. Ukrainian companies apply for credit reports very rarely due to national mentality: they prefer to risk and put their hopes on luck and personal intuition. Usually, all info in credit report like addresses, shareholders, history, pubic records is precise except financials, which are usually outdated about 3-6 months.
Personal credit report is something very hard to obtain. Ukrainian legislation strictly protects personal information, so only credit bureaus are allowed to make personal credit reports. The real problem is in poor databases which are fragmented between different bureaus. In addition not every company may get info from credit bureau. All this makes clients to apply for investigation when they need info about some person.
Global Credit Solutions
Regional Director CIS&Baltics