Promise to Pay - Follow-up Policies

One of the most critical elements of any collections strategy is Promise to Pays. However, many companies often overlook the mechanisms around this process, which can then impact collector productivity, collections results and customer service.

There are four main considerations around PTP’s: system design, parameter settings, follow-up policies and the use of appropriate communication technology. This Tip of the Month covers best practice follow-up policies, which can drive significant improvements in collections results and customer service.

• When a customer cannot pay the entire arrears amount required to cure the account to a current status, then it is best practice for the collector to set up a series of recurring PTP’s rather than just one PTP for the current month.
• Recurring PTP’s increase the collections department’s productivity, as the customer does not have to be called each and every month, if they adhere to the agreed payment schedule.
• In addition, there are significant cost-savings as follow-up calls are not required and letter costs can be eliminated.
• For customers sticking to the agreed payment plan, there is also an improvement in customer service, as the collections department does not have to continuously contact them.
• For customers with a single PTP or the first of a series of PTP’s, the collections department needs to develop a follow-up PTP strategy.
• Customers can be segmented into three categories: low, medium and high risk. The criteria used to segment the accounts should be behaviour score, but if one is not available, then characteristics such as history of broken promises, returned payments, balance, months on books and level of delinquency should be applied.
• Once the PTP accounts have been segmented into the three risk classes, then different follow-up actions can be applied.
• For high-risk accounts it is best practice to contact the customer with a reminder call on the day before the PTP and also a confirmation call on the day of or the day after the PTP date.
• For medium risk accounts it is best practice to call the customer once. It is worth testing whether it is more effective to make the reminder call or the confirmation call. The latter call type is more commonly used than a reminder call.
• For low risk accounts it is best practice to drive different follow-up actions by delinquency level and account balance. For low levels of delinquency or low balances at any delinquency level, then low risk customers typically should not get a follow-up confirmation call. For higher delinquency levels or higher balances at any delinquency levels, then it is best practice to set a follow-up confirmation call one to three days after the PTP date.
• For Broken Promises, it is best practice to call these accounts within one day of the PTP converting into a BP. Typically a PTP will convert into a BP 3-5 days from the agreed PTP date.

The next PIC Solutions Tip of the Month covers best practice PTP communications technology.

Stephen J. Leonard is Managing Director of PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 15 years of risk management experience in the banking and consulting industries at Chase Manhattan Bank and Fair Isaac International. He holds an AS (State University of New York), BA (University of Toronto), MBA (Adelphi University – School of Banking, New York) and is a member of the UK and South African Institutes of Credit Management.