OK, my headline is a little provocative. Perhaps you do know — but you’d be surprised how many organizations don’t.
What don’t they know? The cost of collecting debt.
Seems pretty basic, right? But I’ve visited many collection shops that don’t associate costs to activities at either the account or portfolio levels.
Calls, letters, credit records — all of this costs money. One DCA I know ended up firing clients because they were losing the firm money. Their collectors sent out tons of notices, and people never paid.
You should have a threshold for how much you will spend on each account, which may be based on a percentage of the total balance. When you hit that threshold, give up.
One company I know stopped when they had spent 20% of the balance. For a $100 account, why would you want to spend more than $20?
In aggregate, you want to see which accounts are really profitable. Just because an account is paying you more money every month doesn’t mean it is one of the most profitable for your organization. You may find there are certain kinds of accounts you’re spending too much money on.
I have rarely found collection operations that tracks how much individual collectors are spending. That’s important too. You may have a collector who is upside down, may be using very effective channels.
This is Collections 101: You don’t want to collect at any cost!
If you’re tracking costs and have seen some interesting results, why not post a comment below? Help us out a little.