Urs Baumann is head of Europe's largest collection firm. A man who knows a lot about spending - and collecting - money. We talked with him about Debt
[Editor's note: "Schuld", the German word for "debt", also has the meaning of "guilt".]

The timing could hardly be better if he had picked it. Urs Baumann, head of the Lindorff Group, is expanding the company's business into Germany. His job is to get his clients' debtors to pay. And the economic crisis means more debtors than ever before.

Welt am Sonntag: You're not even wearing a leather jacket.
Urs Baumann: That old cliché. Leather jackets - that's nothing. When we opened an office in Russia, a reporter asked me how many licenses we had. I was a little confused, because I didn't know that licenses were required to do collections. It turned out he was referring to weapons licenses.

There are a lot of ‘black sheep' in your industry.
Baumann: That's the same in any business. At our company there are no leather jackets, no weapons. We work together with debtors to come up with a mutually viable solution they too are interested in.

Ultimately though, it is about getting people who owe money to pay. Are the people themselves to blame for their situation?
Baumann: That is a difficult question. There may be some who are simply compulsive shoppers who get in over their head. Nowadays people hardly ever pay in cash anymore, payment on invoice and automatic debit now being common. So it's easier to lose track and plunge into debt than many people think. Divorce and unemployment situations also lead to indebtedness. And banks are also partially to blame for granting loans to individuals who really do not qualify.

Are the banks then responsible for over-indebtedness?
Baumann: To some extent they are. The banks don't do it on purpose - at least I'm not aware of any bank interested in clients unable to pay due to over-indebtedness. Often it is simply due to a lack of information, which has to do with restrictions written into consumer protection laws. In many cases for example, we have a range of data about debtors that we are not allowed to forward to banks due to protection laws.

So the regulators are to blame?
Baumann: No, that's not it at all. I'm just saying that circumstances can sometimes make it difficult for lenders to make the right decisions. Most banks employ statistical models in their loan awarding decision-making, but these are only as good as the data employed.

But statistical modeling was surely not responsible for the US credit crisis.
Baumann: No, systemic problems were to blame for the crisis. Banks securitized risks and sold them off. In the end, no one knew anymore where or how great the risks were.

Have you ever bought a television or refrigerator on credit?
Baumann: No.

The Germans and the Swiss are debt-averse. Why is that?
Baumann: If you went out on the street and asked people if they had ever borrowed on credit, many of them would say ‘no'. But it is generally not true. Almost everyone has overdrawn their checking account at some time, or utilized an overdraft credit line. Psychologically we don't consider that debt, we think of it as flexibility. In the US though they don't have overdraft credit lines; when your checking account hits zero, that's it. There credit cards have the function that overdraft lines have over here.

That seems to support the characterization that Germans are debt-averse.
Baumann: There is something to that. German is after all the only language in which the word "debt" is practically the same word as "guilt". In English for example the words "debt" and "guilt" have different linguistic origins. It may have to do however with the fact that being indebted is stigmatized by our society. The German word "Zahlungsmoral" also clearly involves a moral dimension not seen in other languages, which speak of ‘payment behavior'.

How is the economic crisis affecting payment behavior?
Baumann: It has been substantially deteriorating since the fourth quarter of 2008. That apparently has less to do with jobs however, as unemployment had hardly risen back then. There is evidently a psychological shock effect in play that makes people think: I'd better just hold onto my money and not pay this bill.

And how high do you think the default rate will go?
Baumann: We foresee a dramatic rise, especially in Spain, the UK and the Baltic. In Spain we see the repayment rate for late payers falling 40 percent.

It's no accident then that you're currently expanding into the UK and Germany.
Baumann: These plans have been in place since 2006/2007, long before the economic crisis.

But the timing is good for you.
Baumann: Sure, receivables management is on everybody's mind. When times are bad, the money just doesn't come in like that. Also, it's not a glamorous part of the banking business. Most people who get into a banking career are attracted to investment banking, not receivables management.

You do a better job than the banks?
Baumann: We increase the repayment rate by 10 to 15 percent on average. Thus we really make an important socioeconomic contribution. The circulation will eventually collapse if no one pays their bills.

So you are a do-gooder.
Baumann: We merely optimize processes.

OK then give me a tip: Say I lent a friend 5,000 euros, but he keeps putting me off about repayment. What should I do?
Baumann: The first step is always to get to know the debtor's situation. What is his financial position? Is he only temporarily unable to pay, or does he not want to? Once you know that, you can start developing a resolution proposal. Going to court should always be a last resort. That's our approach.

Are they mostly unwilling or unable to pay?
Baumann: Well let me ask you this, who do you think exhibits the worst payment behavior?

Banks?
Baumann: It's the government. And the reason is obviously not inability to pay. They just don't want to pay. According to calculations, if every government paid its bills on time, the effect would be equivalent to an economic stimulus package on the order of 60 to 65 billion euros.

Now there's an idea: Pursuing collections against an entire country, like Iceland.
Baumann: Well, I guess that would be a bit too large-scale.


[Editor's note: The article was part of the "Dienstfahrt" ("Business Trip") series featuring business people. The interviews are held on the road.]