Effective Use of Communications

An effective communications strategy is a key part of any collections process. Not only can such a strategy improve overall customer responsiveness, it can also considerably offset the departmental costs of a collections area.

In this ‘tip of the month’ we will look at some of the key factors in putting together an effective communications strategy.

Communication Types
The basis of an effective communication strategy is that customers are different. What may overwhelm one individual may leave another completely unaffected. It is therefore important not to rely on a single communication mechanism when attempting to rectify a customer’s account.

The variables that are available to a collections area with regard to communications are relatively diverse. Typically, a collections manager can choose to contact a customer via telephone calls, letters, telegrams, SMS – text message, email or pre-recorded voice messages.

Communication Tones
The message within each of these mechanisms can be varied according to severity, for example, customer service, gentle, firm and implied legal action.

Based on the above, a collections manager has numerous communications mechanisms available to contact a customer. In a good collections strategy, a mix of these communications will be used in order to reach the entire customer base rather than the sub-segment that only responds to a certain communication type.

Timing
The time factor is also very important in developing communications strategies. A longer, incrementally escalating approach is likely to be appropriate when attempting to regularise very low risk accounts, while a shorter, intense approach is required when dealing with the very high risk cases.

Costs/Rewards
The communications strategy seeks to optimise the balance of the cost of communicating with a customer, against the reward of the customer regularising their account. More recently, it has become commonplace to charge customers for communications, in an attempt to reduce the overall operational cost of a collections area with the income that can be generated.

However, there are regulations that need to be considered when doing this and it is important that only certain communications are charged as there is a customer service impact. An important advantage of charging for collections communications is that certain customers will respond if they feel a real financial penalty.

Putting it All Together
In building a set of collections strategies, the ideal is to segment customers according to their risk profiles and then apply communication actions accordingly.

Based on the above, a strategy for lower risk customers would ideally have many communication points of different types. These would begin with gentle reminders and would then escalate until the account is settled or passed to legal recoveries. The higher risk customer should be subjected to a quicker escalation process, before they are passed to legal recoveries in order to keep the potential financial loss as low as possible.

Paul Shortridge is a Senior Consultant at PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 5 years experience in the financial services industry. Previously with Nedcor as manager – innovation in retail credit, he headed up a team that successfully rolled out projects to reduce risk, increase revenue and reduce costs across all credit and transactional products. In this role, he implemented initiatives that increased revenue by R100 million and introduced their 8-second home loan pre-approval process. As lead consultant at London Bridge Group, Paul was responsible for the business lead in large scale project implementations as well as assisting the sales team with expanding their market in South Africa. He holds a BSc and MSc in Chemical Engineering from the University of Cape Town.