How to play debt poker

The market is signaling that chargeoffs (loan portfolios that creditors like banks, hospitals, etc might firesale to licensed professionals) is going to skyrocket. If you're a bank you're probably losing hope in the world and thinking you'll never be able to make money again and are tightening strategies to limit chargeoff rates.

The brutal truth is - no strategy will ever beat chargeoffs & non performing loan portfolios because consumers will always face hardships and the gap isn't getting better.

What you can do is - learn how to dance in the rain

The old idea is you:

1. Buy the portfolio for cheap

2. Have your team work it (let's say 10 people)

3. Recover it and make the difference (recovered portfolio minus purchase fee minus cost to recover)

Traditionally, you'd go on a site to find some distressed portfolios and try to buy it at 0.5%-8% of the face value, you'd pay a broker fee and get the full portfolio rights for let's say 3% (some random number).

The real risk if you don't know how to play debt poker lies in:

A) choosing the right portfolio that can actually be recovered

B) the payroll associated with recovering on the portfolio

C) compliance risks and flags

But if you know how to play debt poker, you can get away with just yourself or one employee. What if you could remove the whole payroll? What if you could remove the whole compliance risk? This is where Kaizen Pay comes in to the equation. Kaizen is kind of like the "Angies List of Collections & Recovery" for debt buyers or even the "eBay of collections". Kaizen matches people that own portfolios or collection opportunities with collection agencies but automates the full recovery process.

Let's say we purchased that portfolio for 3% on face value and it's a $1,000,000 portfolio. So that means we just bought a $1m portfolio for $30,000 right? We get all the files, put it into an excel, and then put it on Kaizen for auction. But what the f*** are we auctioning?

We have this thing called a contingency fee, it's a percentage (X%), that a collection agency will take as they collect on collection of funds for you. So if we have a $100, and their rate is 30% they will take $30 as their fee if they collect/recover the full $100. But let's say they recovered only $50, then their fee would be $15. Kaizen will get the lowest percentage for you using their auction system.

The difference is you don't have a standing payroll that has no guarantee of performance, you have a contingency fee you only pay when it makes sense (when they capture funds) . Check out the image of the flow below:

If you didn't use Kaizen, you would also get an AR (Accounts Receivable) gap of 30-60 days. This AR gap can absolutely ruin your life, because you're then waiting for 60 days to get paid from a collection company. If you use Kaizen you'll actually be able to make these funds pretty instant because when a collection company collects funds they'll initiate the ACH to you right away taking that 60 days and shrinking it down to 4-5 business days.

Okay so you're getting paid now, but what about compliance risk. How do you know that the people you were magically matched with on the auction aren't harassing the current debtors? WELL, that's where compliance AI, yet another feature from Kaizen Pay which will monitor all dialer calls, correspondence, emails out, emails in, and all of the compliance mumbo jumbo. This is how you obtain the ultimate flush in buying, flipping, trading, debt like an absolute pro.

If you have collection agencies you already work with and don't want to show them to the whole world, Kaizen Pay also has a whitelist function which will only show your offerings to a select group of agencies you approve.

Okay but back to the example, you've now purchased the portfolio for $30k which is actually worth $1m. You put it on Kaizen Pay and then you get a contingency rate of let's say 25%. In 6-8 months you're able to recover 15% of the portfolio (pretty fair I think) so you've recovered $150,000 from the $1m portfolio. With 25% off the top, you're at $112,500. Subtract your $30k purchase price, you're at $82,500 in profit if you've got no other payroll. Imagine what you could accomplish with $500k down.

So the key takeaways are learning to dance in the rain, keeping payroll at an absolute minimum, and using Kaizen Pay

**The Content is for informational purposes only, vou should not construe any such information or other material as legal, tax, investment, financial, or other advice.