Collections are oftentimes the “poor cousins” of other business functions. But you might be surprised to learn how large the pool of dollars collected can be. It’s not unusual in larger companies to realize annual dollars collected in the hundreds of millions. In my career, I have worked with companies that collected $750,000,000 + each year. If this was revenue, Collections would no doubt take a different position in the company hierarchy.
So, Collection is important to a company’s bottom line. But the world is changing, business is changing, and consumers are changing.
Collection must change too.
The same old methods of collecting just are not going to work any longer. Older contact methods are expensive, and can impact reputational risk. We live in a new “tech” world where more of the power is in consumers’ hands. For Collection, this means they want to communicate with and be communicated to differently.
AND … they want to pay their bills in their own time and on their own terms. They don’t want to speak to or be lectured by a collection agent. They want more self-service options, where they are in control.
So where does this leave the collection industry?
Old communication methods just don’t work any longer. Consumers have so many options and channels available to them; i.e. SMS, email, mobile banking apps, etc. Some are more cost effective (SMS) than others. How do these newer channels stack up against the telephone call?
“Text messages have a 94% open rate, and emails have a 20% open rate, while collection letters typically have a response rate of less than 3% (depending on how you define response)”.
Telrock Inc. “Ten Things You Need to Know about Digital Collection.”
So if your operation has just “progressed” to email, you really haven’t progressed at all. You’re already behind the times!
And if you don’t think it’s important to be on social media, think again. Don’t you want to create a presence for your company so when a debtor decides to pay off a debt, they’ll think of you first? Where there are limited dollars to collect from, you want to be at the top of the list that gets paid. Social media….something else that is foreign to the traditional collection business.
So changing how you communicate is key.
Additionally, how do you decide who to communicate with? Use modern collection tools and technology and you can “communicate with the right people in the right way”.
Collectors today must focus on individual debtors – i.e. who owes money and what is their propensity to repay? Segmenting debtors according to their risk level is the difference between a simple reminder notice and a more aggressive contact method. Why waste resources by aggressively contacting a debtor who is habitually late and only needs a reminder?
Segmenting customer portfolios means you can decide on different treatment strategies for like customers. It’s more consistent and efficient.
True, you need to invest in tools and technology to do this. Tools like credit bureau files, collection scores, data to determine likelihood of repayment. But, the business case will bear out the longer term increase in dollars collected and decreased costs.
And isn’t this the goal of a collection business? More dollars collected and lower costs?
What do you think? What other challenges are facing collection businesses today? Leave a comment…….
