The collections industry as a whole has faced significant headwinds in recent years. The upheavals of the COVID era, new rules on medical debt collection, and the finalization of Regulation F – to name just a few of the highest-impact factors – have all had an impact on collections professionals and their work.
Small agencies, with their limited resources, have been hit especially hard. Aside from the factors already mentioned, which affect the industry as a whole, small agencies already faced a market trending toward consolidation, with a higher percentage of the industry’s revenues going to the top few dozen companies. Competing with those big players — some now strengthened further by outside investment — requires creativity. These ten essential tips can help you mitigate the innate limitations of small agencies, and leverage the advantages you have over less nimble competitors large and small. {Note: You should not engage in new business processes or strategies, or alter existing ones, without seeking advice from your own legal and/or compliance experts.}
1. Automate Compliance as Much as Possible
Large, multi-jurisdiction agencies face the difficulty of adapting their operations to state- and sometimes municipal-level legislation around collections activities. Accordingly, most invest significantly in compliance measures, such as in-house auditing and legal teams.
Small agencies may have a lower compliance burden, due to operating in a more restricted geographic area, but also have fewer resources to throw at the problem. Proactively designing collections operations around compliance (prevention, rather than cure) can mitigate compliance risks to some extent.
The choices you make in your software stack can cost-effectively help you remain in compliance. The time and cost required to create and deploy compliance-monitoring software have been slashed by rapidly improving AI algorithms, placing some such tools within the budget of smaller agencies. Aside from specifically compliance-centric software, giving weight to oversight and auditing capabilities when choosing other software (such as Spokeo for Business) can help ease the regulatory burden.
2. Improve “Right-Person Contact” Rates with Better Data Tools
Your right-person contact rate (RPC) is one of the key performance indicators that any agency should track. The collections process cannot begin without accurate contact information for the debtor, and the information available from legacy data providers is often dated or incomplete. Additionally, the number of unbanked and underbanked US residents — who are poorly represented in regulated financial sources used by legacy data providers — is only growing (it had already approached 1 household in 5 at the time of the FDIC’s 2021 survey, the most recent at the time of writing).
Spokeo for Business provides a broader-ranging, more flexible data source that seamlessly incorporates over 5000 regulated and open data sources, representing many billions of data points. Its intuitive search interface can be used with whatever data points you already have – a social security number, name, email or physical address, phone number, etc. – to match your debtor to contact information that’s not already part of your files. This can include additional phone numbers and email addresses, new and historical physical addresses, and a full suite of your debtors’ social platforms and usernames.
Spokeo’s powerful search capabilities can dramatically shorten the time and effort required to reach the debtor. It also opens the door to communications channels that might not be located by other tools, giving your agency a technological advantage.
3. Broaden Your Communications Channels
The final adoption of Regulation F opened the doors to a range of new digital communications methods while tightening the rules around traditional collections calls. This can potentially work in the favor of a small agency.
Small agencies have the luxury of being able to change quickly, in part precisely because they have fewer staff and resources than large agencies. Shifting your focus from phone calls and letters to digital communications tools including email, text messaging, and even social media private messaging can yield a number of benefits. Research from consulting firm McKinsey & Company has shown that utilizing these digital communications channels improves recoveries and engagement, and lowers costs.
Incoming communications channels should not be neglected either. Offering a dedicated phone number for receiving texts can make it easier for debtors to reach you. Similarly, establishing a business page on Facebook or other social platforms creates the option of receiving incoming messages through direct private/messaging. For small agencies that maintain a website, off-the-shelf chatbots (often AI-driven) are increasingly affordable and offer convenience to debtors while reducing the workloads of your human staff.
4. Explore a Customer-Centric Collections Style
Historically the collections industry’s approach to recoveries has been viewed as adversarial, inevitably generating resistance from debtors and scrutiny from legislators and regulators. In recent years, forward-thinking agencies have begun to view this as counterproductive and to recast their collections efforts in a customer-centric mold.
There are numerous potential benefits to customer-centric collections. Working from a base of empathy and collaboration is less stressful for your staff and, therefore, may improve retention. Customer-centric digital collections combine lower costs and higher returns, both welcome outcomes for small agencies with limited resources.
Finally, once successfully implemented, this soft-touch approach provides a key differentiator to help your agency compete with peers still working within the adversarial paradigm. Improved returns, coupled with the reduced risk of reputational damage to the first-party creditor during the collections process, make a compelling argument when marketing your company.
5. Utilize Automation to Lighten Staff Workloads
Staff turnover, with its attendant hiring and training costs and loss of capacity, is a significant issue at smaller agencies. Overwork is often a contributing factor, with agents facing daunting hours and workloads.
Where software can be used to augment the human staff’s capabilities, improve their efficiency, or lighten their workloads, is something that small agencies can’t afford to ignore. AI-driven chatbots can handle many basic inquiries, or even approve simple payment plans if set up to do so. Data-gathering tools like Spokeo for Business can streamline the process of locating and contacting the debtor, and AI-based analysis tools can help determine which debtors to prioritize.
While software and support come at a cost, that cost is often offset by freeing existing staff from repetitive and easily-automated tasks, and by improved returns and cost-efficiency.
6. Focus on Consistent Messaging
As agencies broaden the number of communications channels they use for debtor outreach (see tip #3, above), the need for consistency across communications channels becomes urgent. The scripting used for telephone calls and the language used in physical letters won’t necessarily be the same, given the differing natures of those media, but their tone and content should be consistent.
That same requirement extends to emails, text messages, and social media communications. Each of these has its constraints: emails must avoid language that triggers spam filters; text messages work best when they’re succinct; and social platforms vary widely in the limitations of their private chat functions. Adapting an existing collections letter template to these new media requires some thought and testing, but it’s one way to ensure that all of your messaging pulls in the same direction.
Small agencies may have an advantage over larger competitors in this area: bringing all communications across media to a single theme and style is relatively straightforward in a setting with minimal staff and less institutional inertia.
7. Seek out Niche Debt Markets
It’s difficult to compete with a large national agency for some lines of business, but smaller agencies can build a healthy cash flow around niche markets that larger competitors have little interest in.
Many small businesses, for example, struggle with delinquent accounts. When faced with a choice between costly and time-consuming in-house collections or hiring collections professionals, entrepreneurs may find it simpler just to write off the debt and claim a deduction. While that can be useful at tax time, it does little to help with their cash flow throughout the year. Seeking out suitable niche businesses, including white-collar professional corporations or blue-collar entrepreneurs, and making a case for turning their bad debts into short-term cash flow, can tip the scale in favor of hiring a professional.
Once you’ve begun to penetrate a given niche, you can leverage those early successes to land additional clients within the same or related fields. Word of mouth within that niche may ultimately result in a steady stream of business.
8. Leverage Social Platforms to Enhance Your Profile
Maintaining a website or a mobile app is often beyond the technical or financial resources of a small collections agency. Establishing a presence on social media, by contrast, presents a very low financial bar. The cost is confined to the resources and staffing necessary to furnish your business page with professional-looking photographs and informational content, and then to monitor the page ongoingly. It’s a rare venue where a small agency can go toe-to-toe with larger operators.
Learning which platforms your debtors (and potential clients) frequent is an important starting point, one Spokeo can help with. Once you’ve determined where you need to be visible, standing up a new presence or upgrading your current business page is a relatively quick process. Here again, consistent messaging matters. Ensure that your pages are consistent across platforms, with the same colors, images, branding, and language.
9. Consider Strategic Partnerships
Finding common ground with complementary businesses or professionals is one powerful way for small agencies to mitigate any shortcomings within their own operations. A website, blog, or social media business page, for example, requires regular injections of content. Ideally, that content should position your company as a trustworthy partner in the uncomfortable business of escaping debt and restoring credit-worthiness.
This requires a level of knowledge and expertise that may not be available in-house but can be secured from an interested third party. An ambitious local accountant or a representative from a local bank or credit union, for example, might be willing to provide useful guidance on financial management and budgeting skills in exchange for increased visibility. Similarly, a newly minted lawyer seeking to make a name might be willing to contribute periodically on the legal aspects of debt repayment and credit reconstruction.
Small agencies operating in other markets may also be potentially useful allies. Networking with peers provides an opportunity to exchange tips and strategies on what works and what doesn’t, and to give and receive guidance regarding specific market niches.
10. Consider Your End Game
A key question any small operator must answer is “What is your goal for this enterprise?” Is it your intention to grow into a larger, regional operator? To ultimately sell out at a profit to a larger agency wishing to expand into your area? To provide employment within your community? To simply reach a point where your business is profitable enough, and staffed sufficiently, for you to enjoy a decent income and work-life balance?
These questions often take a back seat to the urgency of day-to-day operations, but they’re important to consider because your operations strategy should support your goals. An expansion-minded entrepreneur, for example, might invest more heavily in scalable software to support that growth. A community-minded agency might put more focus on collaboration with local credit unions or other institutions. Seeking out networking opportunities with agencies in other markets makes sense for an owner who ultimately plans to sell the agency or to expand through the purchase of others.
Considering how strategic and tactical decisions play into achieving your ultimate goals can clarify your thinking, and help make the right choices.
Invest In the Best Tools a Small Agency Can Afford
While small agencies can use their size and nimbleness to their benefit, there are very real challenges they face. Unfortunately, technical debt – a small company’s limited financial and IT resources, when compared to larger and well-funded rivals – can be a factor that limits small agencies’ competitiveness.
That’s why state-of-the-art tools like Spokeo for Business are so important. Legacy data providers’ target clients are typically larger players, and their products are priced accordingly. Spokeo for Business, even with its leading-edge technology and blend of open and regulated data, is a significantly more flexible partner for small agencies. Subscription plans are available to suit almost any budget, yet the software is scalable enough to support substantial growth.
To learn more about how Spokeo for Business can help your small agency compete with industry heavyweights, reach out to our team through the contact information on our Skip Tracing and Collections page. We’ll be happy to answer your questions, arrange a demonstration, or set up a no-cost trial of the product.
Disclaimer: This article is not intended as legal advice. You should not engage in new business processes or strategies, or alter existing ones, without seeking advice from your own legal and/or compliance experts.
Sources
MarketResearch.com: US Debt Collections Industry Worth $15 Billion. Pandemic Did Not Hurt the Business
Thomson-Reuters: Five KPIs For the Collections Department
US Federal Deposit Insurance Corporation: 2021 FDIC Survey of Unbanked and Underbanked Households
Collections & Recovery: 5 Ways to Build Customer-Centric Digital Collections
Better Business Bureau: BBB Business Tip: A Small Business Owner’s Guide to Collecting Unpaid Debts
Lauterbach Borschow Certified Public Accountants: Understanding and Claiming Bad Debt Deductions for Your Business