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.
