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Collections & CREDIT RISK

May 2006

Shuffling Debts to Buffalo

The Buffalo area, long a booming center for back office operations, anticipates steady expansion of collection agencies despite growing competition for workers and rising wages.

by Jane Adler

Mention Buffalo, N.Y. to most people and chance are they’ll think about snow and a fading rust-belt economy. But mention Buffalo to a collection industry insider, and you’ll have a different picture painted for you. The Buffalo area happens to be one of the country’s major hubs for call centers and business process outsourcing. That may be news to the general public, but it’s certainly not a surprise to the many collection agencies that have settled on the edge of Lake Erie in western New York State.

To keep and attract call centers, local and state governments have done their part with tax abatements and grants. That never hurts.

But agency executives say they like the Buffalo area primarily because it already has a large pool of experienced collectors from which to hire. Local residents also have a strong work ethic, agency executives contend. In fact calling it much stronger than that found in emerging call center locales such as Phoenix and Las Vegas, where recreation and nice weather can be a distraction to work.

With excellent workers – and liquidation rates to match – collection agencies in Buffalo are expanding. An Indian company even recently purchased a Buffalo-based agency, turning the trend of offshoring on its head.

While all this is great for Buffalo, it carries some negatives for collection operations. The more demand for collectors, the higher the wages go in the marketplace, the richer the benefit packages become and the more competition for experienced workers emerges.

That competition already is so intense, say area managers, that some collectors will jump to another agency for as little as another $1 an hour in pay.

“Wages are going up, says Charles C. Nail, chief executive at Creditors Financial Group LLC, which has about 100 employees in Buffalo. “The number of call centers and collectors have gone up dramatically in Buffalo. You have to pay for good people.”

While Atlanta has traditionally been considered the center of the collections world, Buffalo has long been widely recognized as an important outpost. In fact, Buffalo has been called the Atlanta of the North.

Now, according to industry executives, a more accurate characterization is that Atlanta is the Buffalo of the South – that’s how important Buffalo has become for collectors.

Erie County, which includes Buffalo and most of its suburbs, has a population of 936,318. That places it among mid-tier metro areas, making it less expensive to do business in than a large city. Office space, for instance, costs about $15 a foot or about half of big city rents.

Many pinpoint the start of Buffalo’s rise as a collections mecca to the 1980s and early 1990s when local agencies snagged national bank business, creation big operations that trained many workers to collect bad debt.

Mark E. Davitt, current ACA international president, notes that a lot of big banks have had operations in the Buffalo area. “Their collections departments created a natural feeding ground for new (companies),” says Davitt., president at ConServe Accounts Receivable Management, an agency in Fairport, N.Y., about 70 miles east of Buffalo. It made it a lot easier to reach a critical mass in a short period of time.”

Among the agencies that made a big impact at the time was the Great Lakes Collection Bureau, which at its peak in the 1990s employed about 2,000 collectors in Buffalo.

“Computerization coincided with the credit card explosion,” which boosted the collection business, recalls former owner Joel Castle. Big operators took notice.

Great Lakes was sold to GE Capital in 1997 by Castle and his partner. GE eventually sold Great Lakes to NCO Group Inc., which still operates a major collections center in the Buffalo area.

Castle left the industry for several years, but he’s back in collections at the Northstar Companies, an operation he runs with his sons in the Buffalo suburb of Amherst.

“There are about 10,000 to 12,000 collectors in the area right now,” Castle says. He figures about 8,000 collectors have five to eight years of experience. “Here, you have more veteran collectors than anywhere else in the country,” he maintains.

With job losses due to the decline of the area’s traditional manufacturing base, Buffalo’s call centers have picked up some of the slack. “Residents who wanted to stay here had no choice but to migrate to another industry,” says Bruce H. Gray, president and chief executive at Creditors Interchange Receivables Management LLC, Cheektowaga, N.Y., a Buffalo suburb.

According to a recent study by the Erie County Industrial Development Agency, Western New York has more than 50 companies with more than 16,000 employees in customer contact centers and back office operations (numbers include collection agencies). Employers surveyed for the study cited Buffalo’s good labor resources as a top reason to grow there. The area has a large number of two- and four-year colleges. The U.S. Census Bureau says 82.9 percent of Erie County residents are high school graduates, compared to 80.4 percent nationally.
“Buffalo is a working class town,” says Creditors Financials Nail. “The work ethic is phenomenal.”

Nail’s company opened its Buffalo office in September 2004. It already had an office in Denver. Each office has about 100 employees. “I’d like to expand in Denver, but I can't find the people,” says Nail.

He sees Denver as an upscale, high-tech center where people are often more interested in their hobbies than work. “It’s a different lifestyle (in Denver),” says Nail. He adds that the best month ever at the company’s Denver office was surpassed by the new Buffalo Operation in less than a year, with the same number of people.

The Buffalo office continues to outperform the Denver operation, Nail says, though the Buffalo office costs more to operate because of higher wages.

Nail recently decided to more than double his company’s office space in Buffalo, leasing 15,000 square feet in a new building near his current location. Within the next three years, he expects to have about 300 employees.

LET IT SNOW
Though Buffalo’s weather may be viewed as a negative by others, collection executives tend to see it as a plus. They say from October to March – prime months to collect – there’s little else to focus on except work, which boosts productivity and results.

Another big plus for the area is the relatively low cost of living. The Buffalo – Niagara Falls area was the nation’s most affordable housing market in the second quarter of 2005 according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. At the time, the median price of a home in Buffalo was just $75,000.

Buffalo continues to attract new collection jobs. Pioneer Credit Recover, a winner of Internal Revenue Service collection work, is in a county that abuts Erie County.

IntelliRisk Management Corp (IRMC), headquartered in New York City, recently announced plans to expand its Buffalo operation to about 300 people. It currently has 50 employees there.

“If things go well, I would like (the Buffalo operation) to be three times that size,” says Vikas Kapoor, president and chief executive at IRMC. The company plans to take about 50,000 square feet of space in a building in Cheektowaga..

The company also recently opened an office in Charlotte, N.C. And, in about six to nine months, IRMC will open an office in Charleston, S.C.

For its new $3.1 million offices in Cheektowaga, IRMC will receive tax breaks of up to $339,800 from the state along with an Empire State Development Grant of up to $500,000, depending on how many employees the company adds. “Incentives were a factor, absolutely,” Kapoor says.

The Erie County Industrial Development Agency provides a sort of one-stop solution for companies looking to expand, according to the Agency’s Executive Director Charles Webb. The group lines up grants, venture capital and tax rebates.

Despite all the growth, Buffalo collectors haven’t been immune from the move offshore. IRMC, for instance, has collections operations in India, the Philippines and Canada. Kapoor explains that work is segmented, with the more complex, higher balance accounts sent to Buffalo.

For example, he says, collections for the Department of Education and high-balance credit card work goes to Buffalo. “We have had a concerted effort to improve performance (at IRMC),” says Kapoor “That has happened, and, as a result, we are getting more business and Buffalo is the beneficiary.”

Offshoring can work both ways, though. In October 2004, Account Solutions Group LLC (ASG) was purchased by ICICI One Source, a large business processing company based in Mumbai, India. ASG has about 100 collectors in India. ASG has 600 collectors at its office in Amherst, a Buffalo suburb. The company is also opening an office in Reno, Nevada.

Citing another reason to do business in Buffalo, Brian Peek, senior vice president at ASG’s office in Amherst, says the area has an excellent telecom infrastructure that provides redundancy and capacity. “We have choices in telecom companies,” notes Peek.

THE DOWNSIDE
But as companies expand, competition for labor is heating up.. John Farinacci, executive vice president of operations at Creditors Interchange, says a good collector in Buffalo commands about $25 an hour, plus bonuses. “I think Buffalo ahs started to price itself out of the market,” he adds.

In the last three years, Creditors Interchange has opened three satellite offices in Florida. The company also has offices in Cleveland and Las Vegas, plus two in Canada.

“We can open satellite offices and get the same quality of person of equal talent for $14 an hour,” he says. The company’s strategy is to open boutique offices with 50 – 60 people. “Otherwise you can run into a shortage of talent,” says Farinacci.

According to Webb at Buffalo’s Industrial Development Agency, some companies are locating in far-flung places, away from other call centers, in order to capture workers who live nearby. “Companies want to give themselves a little breathing space,” Webb says.

IRMC’s Kapoor says “Competition for labor is always an issue.” He explains that Cheektowaga, site of the company’s new office, is less densely occupied by competitors.


Also at play, however, is the area’s declining population – a concern for expansion-minded companies that usually locate in high-growth places. Between April 2000 and July 2004, the population in Erie County declined by 1.5 percent. Since 1990, the county has lost about 32,000 residents.

To keep good workers, collections companies are emphasizing retention and recruitment.

At Northstar Companies, Castle says: “Everyone is in competition (for employees) so the benefits are great.” His company pays 100 percent of healthcare coverage. The company’s benefits package includes dental and eye care, as well as life insurance. “We have the Cadillac of healthcare packages,” he says. “We really need to offer that in order to recruit good people.”

At Creditors Interchange, training is comprehensive and multi-tiered, according to operations head Farinacci. New hires are usually re-evaluated in 90 days, though that period may be stretched if the collector needs more training, or even retraining. “The upfront investment in the person is already there,” says Farinacci. We’re not only building collectors, we’re building loyalty.”

At ASG, creating a good work environment has been the key. “We focus on hiring supervisors and managers who fit the ASG model,” says ASG’s Peek. As such, ASG looks for workers with good people skills not necessarily collection skills. “We do not compete with other collection agencies. We compete more with call centers,” Peek says.

Competition for talent is a fact of life in Buffalo, but so far it isn’t hurting the area’s collections appeal.