Use of external collection agencies can dramatically improve collection and recovery success, but only if organizations placing debt have deep visibility into, and control over, agency results.
Collections staff overseeing debt placements often spend an inordinate amount of time chasing down issues versus completing analyses and making business improvements.
And it’s not getting easier. A groundswell of negative press and penalties has altered the course of debt collection and agency placements. First parties need to increase their visibility into the information and actions taking place at agencies working their debt. The benefits of what third parties deliver haven’t gone away – scalability and better performance for less cost – but first-party accountability for the vendors they engage has increased. Only when full visibility is available over the entire operational process can risk be mitigated and full performance achieved.
It helps with forecasting recovery cash flow, too. How can you predict future cash flow and liquidation rates without understanding the actual activity going on at the agency working your debt? Here’s an example that illustrates the effect full visibility has on cash flow forecasting.
A typical situation has a credit grantor sending a volume of accounts to an agency. At the end of the month the financial results are dismal. The credit grantor recalls the debt and places it with another agency, hoping for improved results.
A better solution has a credit grantor sending accounts to an agency and after a week checking the operational activity on this debt. They find that very little effort (including letters, phone calls or other activity) has taken place. The nightly financials prove these findings, as not much is coming in.
To remedy the situation, the debt is immediately recalled and placed with another Debt Collection Agency (DCA). The first weekly check-in call shows solid activity taking place, with letters going out, calls being made and an acceptable level of right-party contacts being made. Nightly receipts show the results as the money comes in.
The difference is that a typical system has no ability to show clients the level of effort being made on their debt. The agency could be swamped working other portfolios that might be paying higher commissions than you. Without the ability to see the effort being made on your own debt, you can’t forecast the results or future cash flow.
To read more about smart agency placement, read our paper Rethinking Debt Placement: Four Principles to Drive Compliance and Performance.