Many organizations are changing their approach to bad debt recovery and accelerating collection efforts through early intervention practices. Here I talk about treatment strategies and timelines, customer experience and the value prop for early intervention.
The accounts receivable landscape is ever changing. Changes have been more dramatic in recent years led largely by new Consumer Financial Protection Bureau (CFPB) and Telephone Consumer Protection Act (TCPA) regulations and guidelines. Even with these changes, the goals of reducing delinquency and maximizing recovery have never been more important. Critical metrics, such as charge-off percentages and days sales outstanding (DSO), can have huge impacts on the bottom line.
Many organizations are changing their approach to bad debt recovery. Forward-thinking accounts receivable (AR) teams are doing away with traditional models (both internal and external) with the end goal of maximizing performance on bad debt. AR managers are working in concert with collection partners on non-traditional initiatives geared to combat current market challenges. Companies are taking a hard look at collection timelines and evaluating the decision to accelerate collection efforts utilizing early intervention practices.
Accelerating the timelines for collection outreach programs usually enhances the customer engagement experience and improves customer satisfaction as well. Most consumers appreciate courtesy outreach notifications as reminders to current or slightly delinquent payment obligations. Consumers would rather be contacted by the credit grantor regarding an obligation versus being contacted by a third-party collections entity. In fact, early intervention often results in resolution preventing negative information on the customer’s credit history.
Historically, companies have established minimal internal procedures for collection of delinquent revenue, including dunning and low intensity outreach campaigns. Beyond initial internal efforts, it is common practice to have periods (30 to 120 days) where no treatment activity is being conducted. Essentially, delinquent accounts are often housed with little or no treatment until they are forwarded to collection agencies at some point along the timeline.
In many cases, the consumer has not paid the obligation due to oversight or lack of understanding the past due obligation. Most customers appreciate a concerted effort from both parties to sort out the obligation without waiting months to be contacted regarding the debt.
We’ve all seen the graphs demonstrating recovery rates decreasing as debt age increases. These numbers change somewhat by industry vertical and footprint, but generally hold true. On average, the likelihood of recovering bad debt decreases by 10% for each additional 30 days of delinquency.
So why delay your bad debt recovery processes? I developed this Q&A over the years in response to my conversations with customers and industry leaders. Perhaps it is useful for you …
Q. Is a comprehensive treatment strategy for active and inactive customers necessary?
A. Yes, unless you are performing these services internally. Early intervention has a positive effect on revenue, and utilization of control group methodology can demonstrate true lift after expenses.
Q. What is the best timeline to start treatment?
A. Many partners are deploying treatment on active customers 5 to 7 days beyond the delinquent date. The majority of early stage programs for inactive customers begin 1 to 5 days after final notice date.
Q. Is there a value proposition to an early intervention strategy?
A. Historically, most early intervention programs yield significant lift. This lift can be accomplished through detailed account segmentation, utilization of credit history to determine treatment strategy by risk segment, and development of control group methodology to measure true net lift performance.
Q. Why spend financial and intellectual resources to recover what is going to pay anyway?
A. Many of your customers will pay without treatment. However a significant percentage will not pay without being contacted. Develop a program designed to accelerate payment on good paying customers. Account segmentation can be used to identify and increase collections from higher risk customers. Measure lift over a subset of untreated customers to draw conclusions on the value of accelerating the timeline.
Q. Will the customer experience be impacted negatively?
A. No, in fact the opposite often occurs. Customers appreciate courtesy reminders. The key is to perform the work (even if it is outsourced) in the name of the credit grantor. Customers would much rather be contacted by the credit grantor instead of the first contact being from a third-party collection agency.The market is ripe for new collection strategies. There are many programs being performed today that demonstrate 5% to 10% recovery lift by accelerating the timeline for treatment. These early intervention initiatives also enhance positive customer engagement and increase customer satisfaction. Increased collection percentages can mean millions of additional dollars recovered versus traditional timelines. Early intervention initiatives that are data driven, utilize segmentation strategy, and are courtesy oriented, will move the needle on recovery.