It is Easy to Capitalize on Missed Opportunities Within Your Collections Process

This is the first article of a two-part series discussing how to develop effective data and scoring models in the collections process and how to execute an optimal contact strategy.

While the economy is technically out of recession, unemployment remains quite high. Perhaps that’s why we constantly hear the cost of debt collections is rising. The “smile and dial” approach that once produced results no long yields the collections return it once did, and worse yet, it’s become even more expensive.  As a result, collections professionals must develop new strategies that increase collections without increasing their costs.

Collections is a process.  Like any process, there are often many flaws that result in missed opportunities.  An optimized collections process isn’t rocket science, but everyone needs help.  Some of the most effective process improvement solutions are not complicated and are readily available today.  The key lies in finding solutions that are sophisticated, yet easy and cost-effective to implement.  How does any process become easier and more cost-effective? Innovation is the root answer to this question.  Now more than ever, collections professionals need to innovate within their process to work smarter and tailor strategies to optimize results.

Collections can learn a lot from politics. In politics there’s a concept called micro-targeting. It’s the process of identifying specific groups for whom key campaign messages will be most effective. The 2004 Bush campaign used this technique to identify the so-called “security moms,” suburban women voters who were concerned about national security. Likewise, the Obama campaign successfully targeted younger voters by tapping into social networking and text messaging as communications channels. This technique is one that can and should be applied in developing collections strategies. The underlying premise of micro-targeting is that different groups respond differently to different messages and channels. But political campaigns hire high-priced consultants to develop these strategies over months, so how can you develop a micro-targeting strategy without breaking the bank (and thus increasing the cost of collections even more)? The answer is by automating the process using tools and technologies available on the market today.  These tools and technologies drive results in three main ways:  creating and leveraging data in more meaningful ways, synchronizing dialogues with customers/debtors and creating targeted contact strategies. The foundation is effective data and scoring.

Effective Data and Scoring Models

Old scoring models are not suited for today’s business. Collections organizations need to use data more effectively or an efficient process will never be built.

Missed Opportunity #1: Failing to leverage multiple scoring models

Many companies only leverage one single score or model to identify segments to target when setting strategies and prioritizing efforts.  This results in a simple one-dimensional view that is not optimized for all variables.  A solution is to leverage complementary scores like “collectability” and “contactability.”  This multi-dimensional view is not only easy to implement but also powerful because it priorities work to the most valuable segments.

Missed Opportunity #2: Augmenting your traditional data points with external data

Creating a strategy that uses two-dimensional scoring is smart, and a good first step, but the scores have to provide the best possible insight into the debtor’s likelihood to pay.  Companies often perform basic segmentation based on limited traditional data points (e.g. balance, age, credit score, etc.) These data points fail to provide true insight into what is likely happening in that debtor’s life.  By overlaying unique external data (e.g. public record data) and leveraging demographic or life stress indicators, an overall “score” can be greatly enhanced to produce better results.  Some examples of this information might be whether a person rents or owns his/her home, if he/she is married, if he/she lives in an urban or suburban area, and many other similar indicators.  Incorporating this information into your process allows for the creation of more discrete strategies, less wasted effort and better collections results.

Obtaining the right data and leveraging it the right way is the secret of an optimized process. But the process fails if the data is outdated and inaccurate. Companies need to reinforce the process with a comprehensive, enterprise-wide contact management program.  Periodic scrubs are not enough. That leads to wasting money chasing bad information.  Don’t be penny-wise and pound foolish.  To ensure the front end of your collections process is continuously optimized and provide a 15%-20% reduction in overall contact data spend, deploy continuous monitoring via a centralized contact repository and share contact data across your entire enterprise.

“Many organizations are making the transition from “reacting” to “adapting” to lingering difficult market conditions. They are shifting from a pure short-term operational, cost-cutting approach to a more sustainable long-term approach based on drive operational effectiveness and efficiency through the use of “smart data” integrated with smart technology,” said Robert Fite vice president of receivables management solutions, Lexis Nexis.

Now that a process, with up-to-date data has been established, the next article will discuss how to use the data and scoring models execute and optimal contact strategy.

About the Author
Matt Edmunds, VP, Financial Services and Collections Solutions, SoundBite Communications
Matt Edmunds brings 15 years of hands-on industry and operational experience to his role at SoundBite Communications.  As the VP of Financial Services and Collections, Edmunds leads sales, marketing, services, and product development efforts tailored for these industries.  Prior to joining SoundBite, Edmunds was senior vice president of bankcard operations for Outsourcing Solutions, Inc, where he managed all facility, personnel, strategy and operations decisions for four call center sites with 600 full-time employees.  In this role, he was a frequent user of SoundBite’s solution.  Prior to joining OSI, Edmunds spent almost nine years at Capital One Financial Corporation leading collections strategies.