Why a Consulting Project Did Not Fit

A CEO leading a turnaround in a purchased debt business reached out looking for advice on engaging third-party collection agencies. The immediate objective was straightforward enough: reduce fixed cost. The company had already shuttered offices and reduced portions of its internal collection infrastructure. Expanding agency relationships seemed like the logical next step: convert fixed collector cost into a more variable operating model.

But there was an obvious concern underneath the question. If the agencies underperformed the internal teams they replaced, liquidity and revenue would deteriorate further — exactly the type of downward spiral a turnaround cannot afford.

Initially, the discussion focused where many outsourcing discussions do: How do you structure and manage an effective agency network?

As we talked through it, some of the underlying incentive conflicts became more apparent. Agencies are typically compensated based on collections generated. The debt owner, however, owns the portfolio and bears the cost of capital while waiting for those collections. That difference matters enormously. An agency may be perfectly rational in offering longer payment arrangements if doing so increases the probability of collection and keeps the account active within the agency. Once a payment plan is established, the account can effectively become an annuity-like stream of contingent fee income for the agency over time.

The debt owner experiences the economics very differently. The owner is carrying the underlying asset and measuring returns against deployed capital, portfolio yield, and liquidity timing. Cash collected slowly may still be cash collected — but slower liquidation can materially impact the economics of the portfolio itself.

So while both parties want collections to occur, they are not necessarily optimizing for the same outcome. The agency may optimize for sustained payment performance.
The debt owner may optimize for faster portfolio liquidation and capital recovery. Those distinctions become critically important when designing settlement authority, payment plan parameters, recall strategies, and performance metrics within an outsourced collection model.

But somewhere in the middle of the discussion, the real issue started to emerge. We were still framing the decision too narrowly. This was no longer simply an “insource versus outsource” question.

AI-enabled collection tools were rapidly becoming capable of reducing portions of traditional agent workflows entirely. In fact, many of the most operationally effective agencies were already quietly leveraging these tools themselves. There was a third operating model entering the discussion: not simply replacing internal staff with agencies, but redesigning portions of the collection workflow altogether.

And even that answer was unlikely to be uniform across the portfolio. Lower balance, highly standardized debt segments like BNPL may respond extremely well to lower-cost automated outreach strategies. Larger balance accounts, auto deficiencies, or equity-related portfolios may still require experienced human negotiation and judgment.

The more we explored the problem, the clearer it became: there probably was no single “correct” operating structure. Different debt types likely required different staffing models, technologies, agency relationships, settlement strategies, and liquidity objectives.

That realization also changed how I viewed the engagement itself. This was not really a traditional consulting problem where recommendations alone create value. Finding the right operating mix would require:

• testing assumptions,
• measuring liquidation behavior,
• refining segmentation strategies,
• evaluating technology effectiveness,
• and adjusting the model over time as real performance data emerged.

In other words, the difficult part was not producing the initial recommendation. The difficult part was staying with the problem long enough to discover which assumptions actually held up in practice.

We ultimately parted recognizing that agency selection itself was only a small component of a much broader turnaround effort. The real challenge was not choosing between insource and outsource. It was designing an operating model capable of improving liquidity while balancing fixed cost, incentives, technology, and long-term portfolio performance simultaneously.