Champion-Challenging Letter Strategies

In this series of tips, we will review best practices concerning the use of letters in collections strategies. In the previous tip we examined some of the selection criteria that should be used for collections letters strategies. In this tip we will review additional selection criteria that can be used to vary the type and tone of collections letters.

The additional types of data that can be used as selection criteria for collections letters strategies include:

Credit Limits
Some organisations use the accounts credit limit as a means of segmentation for letters. This is particularly appropriate for credit grantors that have a large number of VIP customers, for example private banking clients, politicians and royalty. The logic is that if a customer has a very high credit limit, then this represents a VIP status and so the customer should not receive a standard collections letter, regardless of the risk of the account. For very high credit limit accounts, procedures are often similar to those of very high balance accounts, where the organisation sends specific letters from a collections supervisor or manager.
Promise to Pays (PTP’s)
Accounts that make a single PTP, make a series of PTP’s, break a PTP or short pay on a PTP, should all receive specific letters based on the action that has occurred. These letters should be toned by the level of delinquency. For example a 1-cycle Broken PTP letter would have a milder tone than a 4-cycle Broken PTP letter.
Within Limit/Over Limit
The account’s utilisation level should also be a selection criterion for the letters that are generated. Thus customers who are over limit as well as delinquent should receive a specific series of letters, which are different to accounts that are delinquent, but within their credit limit. These letters should also be customised to level of delinquency, risk band and so forth.
Additional Data
Organisations with sophisticated customer-level systems and data warehouses can also use additional data within their collections strategies to select accounts for specific letters. For example, just as for VIP accounts, banks may wish to segment customers with high savings balances or investments and send these accounts different letters than would be the norm, if this additional data was unavailable.
Missing Data
Accounts should also be selected for specific letters based on missing data. For example, accounts with no contact information should receive a letter specifically requesting them to call the collections department, regardless of levels of delinquency, risk etc. In a well-trained customer contact centre, the agents receiving the incoming calls will then be able to update the missing information. In collections, data and contactability is king and so this is an example of attempting to cure the delinquency, as well as improve the data quality of accounts.

This extensive list of selection criteria to consider for collections letters strategies has covered three Tip of the Month articles. This underlines the wealth of data that is available to organisations for sophisticated letter segmentation. It is best practice to develop a minimum of 35-50 different collections letters and this is certainly possible using the selection criteria that has been described.

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.