Collections has never been so important, with European household debt reaching an astronomical €6,246.78 bn (USD 7,491.9 bn) in December 2020.
According to EY, however, the average collections rate pre-COVID was below 20%. Something has to change, fast. New challenges require new ways of thinking, new business models and new metrics to measure success.
For instance, instead of relying on one channel, by combining phone calls with texts and emails, banks can increase repayments by 60%.
This post will explore how collections teams can maximise their human resources for greater success in the coming months. It will analyse the current collections process, where technology can help, and why it is important to focus on the right type of metrics.
The current collections process
Banks and debt collection agencies are making three primary mistakes: relying on ineffective channels, not leveraging technology effectively, and championing the wrong types of metrics.
- Ineffective channels
McKinsey reports that banks routinely use ineffective means to reach past-due customers.
Using the wrong channel isn’t just ineffective—it can also be downright damaging. McKinsey goes one step further, stating: “A customer might refuse to pay simply to assert control.”
In fact, 20% of past-due customers have purposefully withheld a payment due to receiving an upsetting call from a collector.
- Not leveraging technology
According to EY, traditional collections approaches (like phone calls and direct mail) yield just a 5% success rate.
Plus, they’re almost impossible to scale. The only way to make twice as many phone calls is to hire twice as many staff—or to ask existing staff to work twice as long.
Technology, however, maximises the human resources at your disposal. Collections operations will know all about their past-due customers: preferences, behaviours, preferred channels, and payment history.
They’ll be able to craft tailored outreach strategies according to each individual customer—thereby transforming your success rate.
- Wrong metrics
Unfortunately, collections teams currently focus on the wrong type of metrics, which do little to highlight each past-due customer’s individual history.
Take Days Past Due (DPD), for example, which refers to how many days it has been since a customer was due to pay you back. DPD can be a useful metric—especially if you want to benchmark yourself against other competitors, and to sort high-risk versus low-risk customers.
But an over-reliance on DPD can be damaging. Days Past Due is a reflection of collections success. It shows you whether or not your strategies have been successful, but it doesn’t drive this success in any way, shape, or form.
The blended approach
In order to get the most out of your human resources, you need to implement technology wherever possible.
By leveraging automation, collection agencies can instantly analyse all available data in order to effectively segment their customer base into groups of like-minded individuals.
Then, they can devise strategies based on each individual segment’s preferences and behaviours—thereby powering collections success.
What you need to focus on
Going forward, any collections department needs to focus on new metrics and staff training.
New metrics will allow collection teams to hone in on what matters, while also helping managers and heads of collections identify areas where they can run their department more efficiently and cost-effectively than before.
Staff training will equip collection agents with the skills required to build long-lasting relationships and increase repayment rates.
- Key (new) metrics
We’ve previously delved into the 7 essential KPIs for collections management software. These should now be at the heart of your collections team, guiding your daily actions and overarching strategy. Consider how each metric will also help your agents do their jobs more efficiently.
However, there are other metrics that also warrant your ongoing attention.
- Full-time equivalents (FTE): How many full-time employees are needed to run your collections department? By leveraging automation-based collections management softwares, you can improve your productivity and cut down on the number of FTEs required to successfully run your department—leading to significant cost-savings.
- Outbound calls per case in collections: How many calls do you make per customer? If this is quite high, but you’re still not seeing any results, you should try a different approach. This metric will also help you directly compare the ROI of two contrasting methods: lots of calls per case, or fewer calls but a variety of omnichannel tactics. See which is more effective before investing heavily in that strategy going forward.
- Contact rate via phone: Are you reaching customers on the other end of the line? If not, there’s little point in continuing with endless phone calls.
- Cost per call: To figure out your cost per call, take the total amount that your collections team spends on making calls and divide this figure by the number of calls that were successfully answered. This will show you how much you’re spending on each call—and will help you work out if this is a strategy worth continuing.
- Landing page click-through rate: It shows how many past-due customers click and go through the landing page to attempt payments. If they open the landing page but do not click through, however, then you need to reconsider the user experience vis-a-vis that page. See if your landing pages are effective at driving repayments. If they aren’t, consider changing the copy or design.
- Email open rates: Are customers actually opening your emails? If not, why?
Technology will instantly decipher which of your strategies are working effectively, and for whom—allowing you to pour more time and energy into tactics with a high ROI.
- Staff training
Your collections strategy should revolve around creating a dialogue with past-due customers—not simply imposing terms. Therefore, you need to train your staff appropriately in different areas.
Soft skills lead to hard results. Creating a dialogue with customers is difficult—especially when they owe you money. Some customers might bury their heads in the sand and refuse to engage. Others might get angry, upset, or even become threatening.
It’s therefore crucial that collection agents possess impeccable soft skills.
They need to display empathy and understanding, taking into account each customer’s individual context. They need to be fantastic communicators that walk the fine line between guiding customers towards repayment and not making them feel like they’re being forced.
Most importantly, they need to demonstrate that they’re there to help past-due customers. If they do, customers will be more willing to open up about why they haven’t yet repaid, to listen to potential repayment plans, and to continue doing business with you going forward.
If you want to power collections success, you’ll have to demonstrate how your team can use a collections management software and human resources to complement each other.
Don’t skimp on effectively training your staff. It’s been suggested that appropriate training leads to a 218% increase in revenue-per-employee, so it’s certainly worth taking the time to get it right.
For efficient debt collections, focusing on the right metrics, using technology where appropriate, and re-training your agents are a must.
To learn more about how receeve enables technology-first collections operations, visit our website.
Jan is one of the first members of the receeve team, and has become an expert on the fintech industry, particularly digitising collections and accounts receivable processes. He is a talented multi-disciplinary professional with immense drive to bring modern technologies and processes into financial services.