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Best Practice in Consumer Collections: Strategies and Technologies for Consumer Debt Recovery

By: Astrid Rial
Published: 2008

Best Practice in Consumer CollectionsDiscover how to boost revenue collection success by centralising collection operations, assigning accounts to an offshore outsourcer or selling charged-off distressed accounts receivables.

The new edition of this best-selling report offers a comprehensive examination of the entire consumer collection process and is essential for new and experienced collection managers alike.


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 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.


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).


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.


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, organised 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 prioritise the portfolio and organise the collection process.


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  labour-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,   behaviour scoring, automated collection systems, predictive dialers, best-time-to-call software,  interactive  voice  response,  call  monitoring  and  automated recovery systems.


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

organising  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.

organisational structure

Defining the roles and responsibilities of key management personnel in the collection organisation 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  organisation’s  requirements  so  that  accounts  are  worked adequately while meeting budgetary goals. Along with these considerations, companies must weigh the benefits and disadvantages of centralised versus regional collection operations.


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, maximising 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 maximising 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  standardise  their  negotiation  techniques  with customers  while  allowing  creativity  and  customisation  during  the  call. While  some  companies  prefer  verbatim  scripts,  most  believe  that  they eliminate the collectors’ abilities  to  be creative and customise 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.


Introduction to the second edition

Executive summary

Chapter 1: Overview of consumer collections

Chapter 2: Strategies: segmentation tools

Chapter 3: Technology tools

Chapter 4: Measurements and key performance indicators

Chapter 5: Functional areas

Chapter 6: organisational structure

Chapter 7: Operational strategies and tactics

Chapter 8: The three Ms of collection management

Chapter 9: Recruiting, hiring and staffing

Chapter 10: Collection techniques

Chapter 11: External collections

Chapter 12: Debt sales

Chapter 13: Collections best practice


View full Summary Report


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