What is Collection Efficiency? <\/h2>\n\n\n\n
Some KPIs are analogous to the sort of \u201cadvanced statistics\u201d that sports fans obsess over. They address aspects of the collections process that contribute to efficiency or effectiveness and unquestionably have a bearing on the end result. Collection efficiency is not that type of performance indicator. To extend the sports metaphor, collection efficiency is the scoreboard. Just as a team may play well but still lose, your agency may be doing many things right, but collection efficiency may still reveal that the end result is unsatisfactory. <\/p>\n\n\n\n
Collection efficiency is a straightforward calculation, requiring just three figures: <\/p>\n\n\n\n
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- The dollar value of debt on your books at the beginning of the reporting period;<\/li>\n\n\n\n
- The dollar value of any additional debt you\u2019ve purchased during the reporting period (for first-person creditors, this would be new credit sales that come due during the reporting period);<\/li>\n\n\n\n
- The dollar value of debt on your books at the end of the reporting period. <\/li>\n<\/ol>\n\n\n\n
You can divide the ending value by the total of beginning and newly acquired debt, then multiply by 100 to get your collection efficiency (as a percentage). That percentage is often referred to as your collection efficiency index, or CEI. <\/p>\n\n\n\n
Suppose for the sake of simple math that: <\/p>\n\n\n\n
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- Your starting value for a month was $2 million in debt; <\/li>\n\n\n\n
- Your agency acquired another $1 million in debt during the course of that month; and<\/li>\n\n\n\n
- The amount still outstanding at the end of the month is $1 million. <\/li>\n<\/ul>\n\n\n\n
If we divide your $1 million ending value by $3 million (the total value of your original debts and the new debt you acquired during the month), we arrive at a figure of 33.33% for your remaining debt. Subtract that from 100 to arrive at your CEI, which, in this example, is 66.67%. You have, then, collected two-thirds of the debt that appeared on your books during the operating period. <\/p>\n\n\n\n
According to accounts receivable platform Versapay<\/a>, a CEI above 80% is considered good (though we\u2019d all love that number to be closer to 100%). Anything below that, like the 66.67% in the example above, may indicate that a collections process has some roadblocks and challenges in need of a closer look.\u00a0\u00a0<\/p>\n\n\n\n
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<\/figure>\n\n\n\nHow to Increase Collection Efficiency<\/h2>\n\n\n\n
A number of factors can increase your collection efficiency, but they can broadly be characterized as \u201canything that accelerates the collection and recovery process\u201d or \u201canything that increases the dollar value of our recoveries.\u201d Collection efficiency is defined by success in collecting debt within a specified period of time, therefore, anything that expedites the process \u2013 by definition \u2013 improves efficiency. <\/p>\n\n\n\n
A few highly productive strategies for improving collection efficiency include: <\/p>\n\n\n\n
1. Utilize Effective, High-Speed Communications Channels<\/h3>\n\n\n\n
As we\u2019ve discussed previously on this blog, there is a powerful case to be made for prioritizing digital communications methods, such as email<\/a> and text messaging<\/a>, over more traditional options like telephone calls and physical mail. Mail and phone calls (even automated calls) take time, and there is no guarantee that they\u2019re read or heard.\u00a0<\/p>\n\n\n\n
Emails and text messages are nearly instantaneous, scale well for high-volume usage, and in some cases can provide read receipts. Also, in a secondary boost for collection efficiency, digital communications are proven to increase recovery rates<\/a>. It\u2019s worth noting that there are no hard costs associated with this switch, and any reduction in the use of physical mail cuts operating expenses, boosting ROI. <\/p>\n\n\n\n
2. Invest in Better Debtor Contact Information<\/h3>\n\n\n\n
Time spent pursuing debtors whose contact information is dated or incorrect is, by definition, time not spent on actual collections (and a drag on your collection efficiency). This is in part due to the relatively static nature of debtor data from legacy providers, which is increasingly out of sync with today\u2019s highly online, highly mobile, and frequently un- or under-banked consumers<\/a>.\u00a0Agile and cost-effective modern data tools for skip tracing, such as Spokeo for Business<\/a>, can reduce these dead ends. Any initial outreach that fails due to bad contact data can be flagged and then searched in Spokeo, usually resulting in a range of up-to-date contact information. Spokeo for Business also provides contact information not captured in the credit headers used by legacy providers, including email addresses, alternative phone numbers, and even social media handles, which in turn are vital for redirecting your communications into digital channels.<\/p>\n\n\n\n
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<\/figure>\n\n\n\n3. Automate Routine Tasks Wherever Possible<\/h3>\n\n\n\n
Staffing is often a bottleneck in collections, with too few staff members tasked with too many duties. Using technology to free them, wherever possible, from tasks that take them away from direct interaction with debtors maximizes their productivity. It can also help reduce their levels of stress and overwork<\/a>, which in turn can slow staffing churn and reduce training costs. Not all of those factors bear directly on collection efficiency, but having your staff spend the greatest possible portion of their day on their primary task certainly does.\u00a0<\/p>\n\n\n\n
Functions that lend themselves to automation<\/a> include the creation of collection emails and text messages (from predefined templates<\/a>), personalization of those messages, fielding routine debtor inquiries (through online or telephone chatbots), and many similar tasks. Providing debtors with a range of self-serve options through your website (or an app) is another form of automation that can yield additional payments without requiring the active participation of your personnel.\u00a0<\/p>\n\n\n\n
4. Prioritize Large-Dollar Collections<\/h3>\n\n\n\n
When securing the maximum dollar value of recoveries is a priority, it is straightforward common sense to prioritize accounts that can give those disproportionate returns. Triaging the accounts on your books to target debtors owing the highest-dollar debts can bring about an immediate improvement in collection efficiency and help offset lower-dollar, higher-effort accounts. <\/p>\n\n\n\n
5. Incentivize Payment and Make it Easier<\/h3>\n\n\n\n
Contemporary consumers are acculturated to high levels of personalization and convenience in their interactions with companies. Meeting those expectations by making payment easier and incentivizing prompt payments can have a significant impact on your collection efficiency. <\/p>\n\n\n\n
Increasing your range of accepted payment methods is a powerful starting point. Accepting payment via digital wallets or through PayPal and other payment-processing apps (to choose just a pair of obvious examples) provides a secure and streamlined process that\u2019s convenient for both debtor and creditor. Every payment method your agency accepts will be the preferred option for a different group of debtors, and increase the likelihood of them responding in a timely fashion.\u00a0<\/p>\n\n\n\n
Incentivizing or \u201cgamifying\u201d payments can also be a useful strategy. Offering discounts (modest write-downs) for prompt payment or simple recognition and score-keeping for on-time payments<\/a> through your app or website are two psychologically powerful examples. Finally, identifying points of friction in your payment process, through user feedback or outside consultants, can help eliminate previously unnoticed inefficiencies in your system. Debtors who find few or no impediments to payment are more likely to make them consistently.\u00a0<\/p>\n\n\n\n
Tools, Tactics, and ROI<\/h2>\n\n\n\n
Of the five tips we\u2019ve discussed for improving efficiency, most can be implemented straightforwardly with minimal investment or administrative overhead. They represent tactical shifts in focus rather than a radical makeover of your entire collections process (though there is a case to be made for that, too, especially when talking about the shift to digital-first debt collections). <\/p>\n\n\n\n
That said, having the correct tools for the job can make any such initiative more effective. Spokeo for Business is one of those tools, offering best-in-class skip tracing through its seamless combination of regulated and open-source data, as well as usage-based subscription tiers that make sense for agencies of any size. To learn more about the product, see a demonstration, or arrange a free trial, reach out to our team through the contact information found on our Skip Tracing and Collections<\/a> page.\u00a0<\/p>\n\n\n\n
Sources<\/strong><\/p>\n\n\n\n
South District Group: Understanding Collection Efficiency and How to Calculate It<\/a><\/p>\n\n\n\n
McKinsey Company: Holistic Customer Assistance Through Digital-First Collections<\/a><\/p>\n\n\n\n
US Federal Deposit Insurance Corporation: 2023 FDIC National Survey of Unbanked and Underbanked Households<\/a><\/p>\n\n\n\n