Letter Strategies — Part 1

In this series of tips, we will review best practices concerning the use of letters in collections strategies. Letters can be one of the most effective tools in the collections manager’s arsenal, but they can also represent one of the largest expense streams for an organisation, thus it is vital that their impact is maximised.

In this tip we will examine establishing the framework around successful letter strategies — review periods, working parties and lead times.

• Review Periods
  All too often the adage "if it isn’t broken don’t fix it" is applied to collections letters and generally any form of communication from credit grantors. This is not the optimal approach, as even the best-written letters will become stale as time goes on. In particular, frequently delinquent accounts will start to become used to the content of an organisations letters and will even get to know the sequence better than the credit grantor!

  For these reasons it is best practice to review and re-write all letters on an annual basis. This may sound like overkill, but if the average recurrent delinquent enters 1-cycle every quarter then that means they will receive at least four of the standard 1-cycle letters in a one year period.

• Project Team
  Writing letters is an art and cannot be hurried, as quality and accuracy will suffer. It is thus recommended that a team be established on an annual basis to review the existing letters and re-write all of them.

  It is recommended that the team be assembled from multiple departments, as this is a means of reaching consensus and buy-in across the organisation, as well as sense-checking letter content for appropriateness and tone.

• Lead Time
  As effective letter writing is an iterative process, it is recommended that a period of one elapsed month be allowed for this annual project. This does not mean one full month of the team’s time, but it does mean that the team will be required to review the letters and meet to discuss them over a one-month period.

Prior to the sign-off of all new letters, the collections department management need to be taken through a thorough walk through and all new changes and amendments need to be discussed.

Finally, prior to implementing the letters in the live system, the new letters suite needs to be communicated to the entire collections department, so as to not create any confusion or misunderstandings. This final step is often overlooked, to the detriment of the operation.

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.