The report presents:
- Extensive coverage of Subprime collections, plus debt
sales, offshore outsourcing and multilingual collections.
- The opportunities provided by multichannel technology
tools.
- Many case studies of strategies, processes and application of
technology from the author�s consulting experience.
- The definitive A-Z of collections.
This report includes:
- Examples of strategies, processes and applications of
technology drawn from real-life case studies from the author's
consulting experience.
- Extensive coverage of timely issues such as debt sales,
offshore outsourcing and multilingual collections.
- A detailed examination of collection technology.
- A thorough and comprehensive examination of the entire
consumer collections process from beginning to end.
Topics covered include:
- Leading edge strategies
- State-of-the-art technology
- Samples of collection metrics and reports
- Best practice operational processes
- Setting up a collection call centre
- Defining an optimal organisational structure and
requirements for each functional area
- Organising a multilingual collection process
- Improving third party agency management
This report provides best practice for recruiting, hiring and
staffing, managing according to the three M's of collection
management: monitoring, measuring and motivating, and tips for
training collection staff on effective
Who should read this report?
Senior Executives working within the following industry sectors:
consumer credit (credit cards, mortgage, auto & personal loans,
lines of credit), telecommunications - long distance and cellular,
utilities (power, water, etc...), cable TV, credit unions, and
mortgages at the following levels:
- Credit Policy Director
- Collection Director
- Credit Risk Director
- Portfolio Director
- Recovery Director
- Credit Manager
- Collection Manager
- Credit Risk Manager
- Portfolio Manager
- Recovery Manager
CONSUMER CREDIT LENDING BOOM
Consumer spending is at an all-time high
around the world. Competition and increased availability of
additional credit, mean that more consumers than ever before are
able to purchase goods and services and finance them without having
to pay for their entire cost in a lump sum. With the dramatic
improvement in the reliability and availability of consumer
information and technology, consumer credit,
which was once only available
to the privileged few, is now being offered to
consumers at all income levels. Creditors are able to make
sound lending decisions quickly and even the low-income, the risky
or consumers with no previous credit history are able to obtain
credit cards and loans.
Consumer credit and mortgage
debt represent a higher percentage
of disposable income than ever
before. In this report, consumer
credit is defined as credit that is issued to
individuals for the purpose of benefiting themselves, their
family or their household. The most common forms of consumer
credit are credit cards, lines of credit, personal loans,
overdrafts, car loans, mortgage loans and home equity lines of
credit. Some consumer credit is revolving, also called open-ended,
and other credit is paid in installments, also called
close-ended. Most credit cards, lines of credit and home equity
lines of credit are revolving and allow multiple transactions at
different times throughout the life of the account and borrowing up
to an assigned credit limit. When a consumer has a revolving
account, he can make multiple charges or transactions on the
account and the available credit is reduced accordingly. When
timely payments are made to lower the balance, the available credit
is replenished.
Some revolving credit is secured and other
products are unsecured. Loans, such as for the purchase of a home,
car, boat or other large asset, are usually secured by the
asset, issued for a single purpose and paid off in equal
monthly installments according to the specific loan term. Secured
debt is usually defined as debt where the consumer has provided
collateral for the debt. Of course, there are exceptions to these
guidelines.
ROLE OF COLLECTIONS IN THE CONSUMER
CREDIT CYCLE
It is well known that it costs many times more
to acquire a new customer than to retain a current one. This
principle is an important consideration in the consumer credit
cycle. Most consumers whose accounts fall past due (that is, when a
scheduled – or due – payment is not made) will eventually pay, and
more than 90% will pay in the very short term. Therefore, the
primary objective of consumer collections is to work with
customers so they can bring their accounts current (that is, bring
the account up to date in terms of scheduled payments being made)
so they can continue using their credit, and hence generate
revenues for the company. Collecting accounts receivables from
customers using an efficient and opportune approach is
critical to success. For those customers who are unable and/or
unwilling to bring their accounts up to date, the collections
objective is to reduce net charge-off losses by adequately working
accounts that fall past due.
Delinquency rates rise and fall
with economic changes, especially
unemployment; but whether an economy has low or high interest rates
or inflation, job losses are increasing or decreasing or its
currency has suffered a devaluation, consumer
collections plays a key economic
role in the profitability of
companies and banks. That is to
say that a job in the consumer
collections field usually provides good job security, in good times
and bad, because there will always be consumers who borrow and
default on their payments.
Creditors have many different collection
options to collect consumer credit. These include
making written, telephone or personal
contact with the customer, using a third-party
collection agency and/or bringing a lawsuit. Consumer
collections consists of assessing the
customer’s ability and willingness to
pay, calculating the cost and
effectiveness of different collection tools,
evaluating the customer’s credit and collection account
history (both with the creditor and with other creditors) and
determining the value of the collateral (in the case of secured
loans).
THE BUSINESS OF CONSUMER
COLLECTIONS
Consumer collections encompasses
many different processes including early-,
mid- and late-stage, charge-off handling and distressed receivables
debt sales. Many of the practices discussed in this report
apply to many industries including credit cards, secured and
unsecured loans, mortgage loans, telecommunications
services, health care, utilities,
insurance and other financial services.
Strategy
The foundation of any collection business is a
well-planned strategy that takes into account the seasonal
changes in account volumes, customers’ other income and
expenditures, purchasing and credit
habits, holidays, collector staffing
requirements, etc. Collection strategies
are detailed, organized plans of action defining how
accounts will be segmented in order to apply different collection
treatments based on cost, effectiveness and availability of
resources. The key to a successful strategy in consumer
collections is understanding
the business’s objectives
and resource constraints. It is nearly impossible
to have sufficient resources to work each and every account that
falls into collections with the same intensity. There are many
different methods for defining risk in collections and empirical
and statistical tools are used to segment, sort and prioritize the
portfolio and organize the collection process.
Technology
Great strides have been made
in the development and application
of collection technology in the last 20 years. The pace of
change and impact of collection software and
hardware in day-to-day consumer
collection operations has been tremendous.
Previous manual and labor-intensive
processes are now highly automated, allowing for dramatic
improvements in productivity and efficiency. This report will
discuss the impact that technology has had in the collection
industry and describe the functionality and application of the most
beneficial technology tools used by companies adopting best
practice, including adaptive control
systems, behavior scoring, automated collection
systems, predictive dialers, best-time-to-call software,
interactive voice response, call
monitoring and automated recovery systems.
Measurements
Measuring and comparing
collection results and trends in
consumer collections is challenging because
results can vary widely between
companies, products, portfolios, seasons of
the year, etc. The key to
measuring collection results is to closely track trends in order to
identify when performance strays outside
the norm. Defining how success
is measured and monitored and how budgets are set is critical
in order to meet collection targets and goals. Definitions and
samples of the top six critical metrics required to effectively run
a collection operation are discussed in this report.
Functional areas
Organizing a consumer
collection operation requires separating
similar functions into different processes. Accounts sharing
similar characteristics, strategies, personnel and
collection activities are divided
into separate functional areas to facilitate the
management process and assignment of available resources.
Segments of accounts within each area require unique approaches,
tools, debt relief programs for secured and unsecured accounts,
etc., that are applied with graduated intensity so that early
delinquency accounts do not receive costly or ineffective handling
that could complicate the collection process as the accounts
age.
Organizational structure
Defining the roles and responsibilities of key
management personnel in the collection organization is based on the
characteristics of each operation, and goes hand in hand with the
definition of how accounts will be assigned to collectors, such as
whether they will be pooled or collectors will ‘own’ specific
accounts. Tools such as capacity planning models are important to
define each organization’s requirements so
that accounts are worked adequately while
meeting budgetary goals. Along with these considerations, companies
must weigh the benefits and disadvantages of centralized versus
regional collection operations.
Tactics
By nature, debt collectors are insistent and,
if time and money allowed, would work each
account until every possible
collection step was exhausted. Although
persistence is admirable in some industries, working consumer
collection accounts in this way is not a sensible business decision
because the volume of accounts does not allow this level of
thoroughness. A wise collection manager understands that some
accounts are uncollectible using normal in-house processes and will
require exceptional efforts. Other accounts may be collectable, but
at a cost higher than the potential recovery. Courses of action and
their optimal implementation times for each segment of
accounts drives the operational
strategy in collections. Operational
strategies and tactics include the day-to-day management of the
collection process, the scheduling of
timing of collection events,
definitions of intensity rates, inbound and outbound
call handling strategies, maximizing productivity and
effectiveness with predictive dialing
technology, and taking full advantage of the benefits
of written communication tools.
Supervision of the collection
staff
Collections is an intensive personnel-driven
process and to achieve targets and goals, collection managers
and supervisors must understand how to recruit, hire, train and
motivate their team. Human resource management is the most
time-consuming daily challenge of a
collection supervisor’s experience. The fundamental
tools in collection operations management are the ‘three Ms’ –
monitoring, measuring and motivating. Call monitoring,
building and using collector measurement tools such as
balanced score cards, and
implementing monetary and
non-monetary rewards and incentives,
are critical success factors for
retaining staff and reducing turnover.
Staffing models for filling part-time and full-time shifts, which
are critical to a collection call centre operation’s success in
maximizing right- party contacts, are discussed in depth in this
report, which provides many different and creative options.
Collection negotiation
techniques
Using a collection call model of the ‘Vital
Five’ steps of a right-party contact helps
collectors standardize their negotiation
techniques with customers while allowing
creativity and customization during
the call. While some companies prefer
verbatim scripts, most believe that
they eliminate the collectors’ abilities to be
creative and customize the call according to the customer’s needs
while protecting the company’s interests.
Charge-off, recovery and debt
sales
Managing third-party agencies and legal firms
requires similar disciplines to those that are
applied to pre-charge-off collections.
Strategies and processes for recovering
charge-offs assigned to third parties
include selecting the third-party companies
who will work the debt,
defining contract terms, implementing
placement strategies, using accurate
and timely measurements and requiring the creditor’s
active participation in frequent audits.
Many creditors are exploring
selling distressed accounts receivables to
generate recoveries that will positively impact the company’s
bottom line. Those companies adopting best
practice for successful debt sales
use scoring to determine the account value, define the terms
of a sound contract and assign sufficient resources for post-sale
servicing.
FUTURE TRENDS
The final chapter of this report provides a
glimpse of key trends and a look into the future of consumer
collections, and explores the impact of the
availability, reliability, reduced costs
and
advancements of telecommunications services,
credit bureaus and the internet.
Dramatic increases in consumer lending
will require more collection
activities. Fortunately many of the same tools that
assist credit grantors in making sound decisions are helping
consumer collectors become more efficient and productive.