If your business is expanding, it might be time to consider adjusting your collections operations. Increased sales lead to greater consumer debt—and unfortunately, some of those consumers will fall into arrears of their bills.
So how can you scale your business and at the same time manage collections effectively? Which metrics should you focus on, how should you manage your workload, and why is customer-centricity the key to successful scaling?
We’ve assembled the top 7 things you need to know before scaling your business.
1. Monitor your Monthly Recurring Revenue (MRR) collections rate
It’s great to aim high and seek to unlock hyper-growth. Unfortunately, if your collections rate can’t keep up with your growth, you’ll soon run out of cash. Therefore, companies need to closely monitor their MRR collections rate and do all they can to improve it each month. By focusing on collecting 100% (or more) of what they are owed, businesses can protect their cash flow and safeguard continued growth in the long term.
Currently, however, companies only collect an average of 60 - 70%, meaning there is plenty of room for improvement. Businesses that collect more than their competitors will reap the rewards. The increase in liquidity will allow higher spending on increasing a competitive advantage (rolling out new products, new marketing strategies, or just generally focusing on expansion).
By improving your MRR rate, your company will generate more profits with exactly the same revenue, growth, and expenditure.
2. Be smart about managing an increased workload
Employees can only work so hard. You can’t expect your existing workforce to seamlessly handle an increasing workload when you scale your business or operations. Consider hiring more staff to increase your team's capacity and, when marked increases in staff yield diminishing returns, implement debt collection tools that to yield more efficient collections processes.
While hiring new staff and purchasing software are initial expenses, they will soon be significant cost drivers—provided you hire high-quality candidates and implement the collections management system.
3. Optimise your operational efficiency
Scaling means more than simply hiring new employees. Companies also need to reassess how efficient their operations are, working out the best way to divide responsibilities between departments. This is where strategies such as process mapping can be beneficial.
Process mapping helps collections teams list all of their current processes, map out their relationships and work to make these processes more efficient and effective. For example, Crédit Agricole created 64 process maps for its customer payment processes. They analysed these maps to identify inefficiencies before creating new, more streamlined processes. The result? They eliminated 960 hours’ worth of duplicate work per month and 480 wasted hours due to following inefficient processes.
Businesses should also consider implementing AI where possible, such as analysing key performance data and automatically optimising all future dunning strategies.
4. Identify and track key KPIs
To scale your business successfully, you should analyse which KPIs are most essential to your collections success and master your accounts receivables processes moving forward.
It’s important to stay on top of common collections KPIs, such as Average Days Delinquent (ADD), Days Sales Outstanding (DSO), and Collections Effectiveness Index (CEI). However, since the COVID pandemic has accelerated digital communication, collections departments also need to monitor digital collections KPIs such as email bounce rate, open rates, click-through rates, landing page views, reaction time, and payment success rates.
5. Understand your customers’ preferences
To make a profit, you need to know your customers, their behaviour, financial history, favourite communication channels, and the messaging that they respond to best. Collections teams can use this valuable information to create personalised dunning approaches. This will significantly increase the chances that customers will repay their debts.
The COVID-19 pandemic pushed almost all consumers onto using digital channels, with European digital adoption rising from 81 - 95%. Therefore, mastering digital communication and taking into account your customers’ preferences have become more important than ever.
6. Examine your system's adaptability and flexibility
Scaling your business means that you will be handling more employees, more tasks, and more past-due customers than before. Collections departments must ensure their collections software is up to date and that it can optimise or streamline collections operations, rather than hampering collections success.
The best and most cost-effective way is to implement an up-to-date, cloud-based collections management system built with flexibility at its core (for instance, with a white-label offering and drag-and-drop content builder). Further, non-cloud-native systems often yield data hygiene issues and suffer from a lack of interoperability. This can be particularly problematic within multi-region operations.
Avoid using outdated software at all costs—this will slow down your operations as well as time-to-value. If you’re still using a legacy collections system, it’s time to make a change.
7. Think big and plan long-term
Many collections companies or DCAs adopt overly aggressive dunning tactics. This strategy will probably generate profits in the short term but it might cause far more harm than good. The brand’s reputation will suffer as customers tell others about their poor experience with collections employees. Not only will the company lose individual customers, but this reputational damage makes it harder to acquire new customers moving forward.
Instead, companies should use customer-centric debt resolution strategies tailored to their customers’ specific preferences, financial history, and behaviour. This will inform them of the correct messaging and most effective communication channel to use for each segment, resulting in increased collections success and repayment rates. In turn, a user-centric repayment approach will serve to extend your company’s core values and increase flexibility for your customers.
Achieve collections success
By keeping the 7 things outlined above in mind, you can successfully scale your company and manage debt collection with ease.
If you want to learn more about the top 3 debt collection tactics to drive your digital transformation, check our whitepaper here.
