Significant investment in digital transformation and AI has become increasingly important for attracting capital in the sector. Over the past 18 months, several major market participants (including Intrum, Lowell and iQera) have undergone material recapitalisation, reflecting elevated leverage, higher funding costs and ongoing operational pressures. With a number of maturities now falling due in the 2028-29 period, balance sheet resilience and demonstrated operational efficiency are becoming key considerations for investors and lenders assessing the sector.

Despite increased demand for debt collection services, agencies are facing a longer-term structural reduction in the supply of non-performing loans (NPL). According to Octus, annual European NPL transaction volumes declined to €18 billion in 2025, down from €72 billion in 2017. NPL ratios also remain close to historic lows, falling in the UK from approximately 4% in 2011 to around 1% in 2024–25. This reflects the combined effect of sustained bank deleveraging following the global financial crisis and tighter post-crisis lending standards.

The result is intensified competition for a smaller pool of assets, driving up portfolio pricing and compressing returns. Historically, Intrum achieved returns of around 4.0x its cost of funding in stronger market conditions, declining to approximately 2.5x ahead of its restructuring. More recently, participants such as Arrow Global are reported to be operating at closer to 2.0 – 2.2x, a marked tightening relative to historical norms.

Since the introduction of the Consumer Duty in July 2023, and its extension to closed products in July 2024, firms have faced heightened requirements to demonstrate fair customer outcomes. A substantial and persistent proportion of UK adults display characteristics of vulnerability, requiring firms to conduct more detailed affordability assessments and provide tailored repayment plans. Firms are also required to evidence fair treatment through comprehensive documentation of customer interactions.

While the volume of overdue accounts has increased, the time required to collect has lengthened – increasing administrative costs and placing additional strain on cash flow – leaving recovery rates broadly flat or declining.

In this environment, operational efficiency is key, and AI is emerging as a meaningful differentiator. AI-enabled platforms can reduce cost-to-collect through automation while improving customer engagement through more personalised interactions, supporting higher conversion rates and allowing firms to bid more competitively for portfolios while protecting margins.

However, the ability to invest in these capabilities is uneven. Smaller firms may lack the resources to embed AI effectively and businesses remaining reliant on labour-intensive call centre models face structurally higher costs.

This divide is expected to become more consequential as firms approach refinancing. While €1.3 billion of sector debt matures in 2027, this rises to €2.4 billion in 2028 and €5.1 billion in 2029. Firms with limited digital capability are likely to encounter weaker lender appetite, higher funding costs and more restrictive covenant structures, while those able to demonstrate embedded AI-driven strategies and scalable operations should benefit from stronger access to capital. The window to act is narrow. Firms that delay risk approaching future refinancing events from a less competitive position.

In a low-margin environment, a diversified revenue base is increasingly important. Several large operators have adopted multi-line models combining servicing, investment and fund management, with third-party capital partnerships allowing participation in portfolio growth without increasing leverage. Intrum’s arrangement with Cerberus Capital Management and Arrow Global’s positioning as an integrated asset manager are examples of approaches that provide more stable and predictable cash flows.

There is also growing uncertainty over how many assets remain with servicers delivering minimal returns, often managed on a high-volume, whole portfolio basis. Separating underperforming assets for faster resolution and increasing supply in the NPL market, supported by technology-driven measures, could help replenish the market and improve pricing.

Robust and granular cash flow forecasting is essential at a time when significant investment is required and conditions are tightening. Management must ensure information flow from servicers across all jurisdictions is reliable and timely – in our experience, internal teams are often resource-constrained, and delays in data can limit the ability of central functions to assess liquidity and act promptly.

Preparation for refinancing should begin well in advance, with firms assessing their full range of options, particularly where new debt may carry more onerous pricing or covenant requirements.

The debt collection sector remains strategically important and is evolving. Businesses that invest early in AI, diversify earnings and strengthen liquidity management should be well positioned to access capital and deliver sustainable long-term performance. Those that fail to adapt may find the combination of lower portfolio returns, regulatory scrutiny and more selective credit markets increasingly difficult to navigate.