It’s 2020, a great time to reflect on the last ten years and a great time to look ahead. When was the last time you took a hard look at your entire collection process flow? Sometimes, it’s best to start with a clean sheet of paper. If you were starting from scratch today, what would do differently? Even something as simple as invoice timing can be critical to cash flow. There are many things that can hinder us from the desired strategies including; regulatory issues, internal systems limitations, staffing and more. But, at the outset, throw away all the rules. Start fresh. In the perfect world, what would be our secret sauce. What would you change or do differently to optimize collections, increase cash flow and reduce write-offs?
I have been in the collection business all of my adult life. In that time, I have met with thousands of companies in a multitude of industries. The really successful operations I have several things in common:
1. They know their numbers.
2. They measure everything.
3. They consider new ideas.
4. They never stagnate.
5. They are committed to change and not fearful of it.
Here are a few things to consider when addressing your new commercial collection strategy in 2020.
Email is Vital to Your Contact Strategy.
In order to contact your customers, well timed emails are essential. A delinquent customer should be getting an email reminder frequently. If the customer payment is due on the 15th, they should be getting their first email on the 16th. Email frequency is also important. Every three to five days is not over-kill.
What Percentage of My Customers Have a Valid Email Address? - Can I get more?
Before you can email your customer, you must have valid emails. What is your bounce rate? Well run organizations continually purify their customer information from all departments. They have specific data fields for numerous departments within each customer and those emails and contacts are continually updated by all departments. The marketing department, customer service department and the collections department all share data in order to improve the list. Frequently, I see data siloed in each department and data is not shared because of internal boundaries. Every call with every customer needs to start with a verification of information and an update to the database. Obtaining cell-phone permission is also equally important to the process. Also, when your customer signs up online, have the email verified.
Internal Call-Center FTE’s Versus AI
In most customer care facilities, 50% of the inbound call volume is related to questions about a bill or bill payment. These customers may or may not be delinquent. What is your on-hold time? If it goes beyond two minutes you are going to drop calls and increase your delinquency. New technology is available to utilize conversational AI in providing these customers with fast and easy service without the need for human intervention. If the customer has a complex problem, the issue can be handed off to a representative quickly and easily. Just a few years ago, this technology was unavailable. In the next 10 years, it will become as commonplace as an IVR.
Do You Build It or Outsource It?
Are large internal collection teams a thing of the past?
Most companies today are placing accounts at earlier stages and have incorporated first-party strategies into their calling campaigns. If you are calling your customer for payment, consider outsourcing the services to a reputable company that can represent you and handle those calls for you. They have the technology and systems to do it faster, better and cheaper. Obviously, head count is a big problem today for most companies and customer care and collections are two areas that have significant head count.
When Should You Move to Third-Party Collections?
In the past, a customer was not placed for collection until the relationship was over. Today we see a trend in placing accounts at the 60-90 day mark before a customer relationship is terminated. The goal is two-fold. Collect the money and save the customer. There is no reason to think that you cannot reestablish your relationship with a customer after they have paid their delinquent invoice. You may put them on new terms during a time of delinquency where forward flow business is paid for in advance or retainer. Fundamentally, we are all trying to save customers and reduce churn. Not every customer who owes you money is a bad customer for tomorrow. They may just have a temporary problem.
Later Stage Collections
2nd placements, 3rd placements, debt sale, litigation?
Some collection strategies don’t make sense to me. The collection curve today requires a longer time horizon because people do not pick up the phone immediately. The old adage in commercial collections was you collect it, close it or sue it in 90 days. Today that figure is more like six to nine months. If you do not consider litigation on balances >$5,000, you may be missing out on opportunities to collect at the later stages because some debtors will not pay until you get the attorney involved. By the way, only a small percentage of legal accounts ever go to court. Most of them get settled on the courthouse steps. “SUE ME” is a stall tactic.
How Long Should My Primary Vendor Have for Collections?
A primary placement strategy needs to be long enough to allow the primary agency more months to work through various calling, texting, email and letter strategies. It may often take 90 days of repeated contact attempts to get the debtor to respond. At Access, we say, “When the debtor calls, it's a special occasion.” What we mean is when we finally get the debtor on the phone, we need to make the most of that conversation but if the client only gives us five months to collect, we both lose opportunity.
Have You Looked at the Results for 2nd, 3rd and Tertiary Placements?
If your 2nds agency is obtaining more than a 2% return the primary agency either did not have enough time to collect (6-9 months) or the primary agency did not do their job. If you do the math on 2nds, 3rds and tertiary placements including the time it takes you to manage it, your return on investment may be at break-even at best. It may be a better strategy to give your primary agency 12 months to collect, report to commercial credit bureaus and pursue litigation on large balances.
Sell the Debt?
Selling debt to a debt buyer is a great strategy for many organizations. At Access, we have established relationships with debt buyers and work with them in cases where our client wants to package the difference after we have closed the remaining balances. Our client gets a higher price for their portfolio because the business is fresher and cleaner.
Are Your Wheels Turning?
At the end of the day, the purpose of this article is not to provide you with a list of solutions for how you should run your business, the purpose is to get your wheels turning. Only you can determine what pathways are best for you. I have seen thousands of new and unique approaches that have been highly successful over the years. They all shared those 5 things in common. We hope that your search for new and innovative ideas includes a conversation with our company. We will always be respectful of your time and make every effort to invest the time to understand your needs.
Tom Gillespie is the president of Access Receivables, Inc.