Receivable/Accounts - Information for Credit and Collection Issues

Thursday, July 26, 2012

Collection Agency File Management

In this article, we look at what a collection agency should do to organize file management.  Many clients have a skewed perspective of how much (or how little) manpower should be assigned to their files, and many collection agencies fail to recover funds for their clients, not because of improper collection technique by their collection agents, but by how they manage their files.

Back in the day, I knew collection agencies that worked on trays of index cards – this was the time of PICK programming, and databases like Dbase or FoxPro were brand new, and not horribly helpful to collections.  They worked a file, noted it, and put the card to the back of the tray.  To this day, file rotation is still the heart of successful collection agency file management.

The Three Business Day Turnover

At the core model, a period of turnover needs to be established.  For collection agencies, the most frequent turnover allowed with the various provincial laws in mind would be a two-business day calling frequency, and this can be widened up to a 30-day turnover for accounts receivables, or friendly reminder calls.  But it has been my experience that a three-business day turnover is the most efficient.

Imagine, if you will, the image above, has 100 debtors on each page.  Each day, the collection agent is able to call the 100 files on the page, and at the end of the day, the page goes to the back, and on the second day, the second page with 100 files is called, and so on.  This is a simplified example, but it illustrates the process.

The point of determining file turnover and frequency, is to establish a sense of urgency and followup on failed arrangements, while ensuring thorough coverage … every file in this simple example gets called, regardless of balance, scoring, or client.

At Kingston Data and Credit, our database handles files in a more complex manner – it allows a follow up date to be established outside of the three-business day turnover to allow for follow up on promise payments, time for mail to be received, post-dated arrangements, legal court dates and deadlines, or in anticipation of developments on the files.  Inside each day of scheduled calls, files are prioritized (cooperative and promise payments receive higher priority attention than refusals to pay or trace efforts), and sorted by balances. 

As well, files are assigned to specific receivable manager’s portfolios, to ensure specific industry groups are addressed.  Thus, the landlord with a single housing tribunal order that assigns a file is given to a specific staff member for attention, while a national client with 1,000 files a month also receive the same intensity with a larger manpower pool.

The Law of Diminishing Returns

The life cycle of a collection file can be mapped … often a stair step liquidation report will show the same thing, in an overview.  We have a white paper and sample stair step excel spreadsheet we are willing to share.  If you would like a copy, email me at

What ends up happening is a portion of recoveries come from the first letter or call, and as the files receive consistent, urgent treatment, revenue ramps up to the potential liquidation rate achievable for that industry group.  That might be 45-55% for a cable company assigning files on a timely basis with valid information, or 5% for second assignments from a retail mail order company with unverified information from over two years ago.  At a certain point the files will become exhausted, and a good file management plan will deal with these files.

At our office, no file becomes exhausted or dormant, as long as contact information is available – however, its turnover is radically changed at the point of 'diminishing returns'.  This can be a debtor refusing to pay, a certain number of answering machine messages or no answer calls without response, or the number of man-hours put to a file, as an example.  The rotation at that point becomes either a 30, 60, or 90 day rotation, supplemented with reporting to the credit bureau as an outstanding debt, calculation of interest compounded on the file as allowed by the client, and review of the debtor’s credit bureau file.  This creates a sense of long-term effects for the debtor, and allows a continuous flow of recoveries for the client, regardless of the age of the file.

Many collection agencies recognize diminishing returns after a period of time, but their plan is simply to shelve the files with no more effort – this is why second placement agencies often recover funds where the first placement agency doesn’t – when a file is assigned to another agency, it’s a rough equivalent of our internal review process.  By having an 'exit plan' for exhausted files to not be shelved, but move to a different work flow process, effectively we become our own second placement agency (and third, and fourth, etc.), and we continue to recover funds for our client on a long term basis, often recovering 2%-10% over the initial recovery period.

Business In, Business Out

In a perfect world, a file comes in to the collection agency, receives two or three calls, and then pays.  This exhausts the file and removes it from the turnover.  Because collections occur all the time, the inventory of active collection files is constantly dwindling at an agency – furthermore, files become exhausted as debtors are discovered to be deceased, bankrupt, or even when telephone numbers are discovered to be not in service or disconnected.

To maintain a stable workflow, new business needs to be put into the active inventory.  The inward flow of files needs to match the output flow, otherwise the turnover will become too lean (and collection agents won’t have enough files) or bloated, forcing the turnover of files to become wider.

Some creditors do not assign to agencies on a regular basis – although all agencies strive to have clients that do so.  Some drop huge batches of files all at once, while other clients have a sporadic listing pattern.  This flow of business needs to be managed constantly.  Many files may be directly inserted to a collection agent’s portfolio, where others may go through an initial lettering process, or data scrub in order to locate debtors, attaching credit bureau reports, or handling by a skip-trace department.  After the files have been prepped and data added, they are assigned out to collectors.

Many people talk about FTE – “full-time equivalent”, or a single body employed by the agency.  A work plan needs to be based on people, and file flow is important to match up to the manpower assigned.  For a manual desk requiring an average amount of investigation or referral to backup, a single FTE can handle an ongoing portfolio of 300-600 files (with the 300 core files on a three-business day turnover at the heart of the portfolio, supplemented with post-dated payments, review files on a wider turnover, and trace files being investigated), and  a regular input of 200-400 files (depending on the liquidation rate of the client).  The input of the number of ongoing files is often more important than the balances owed.

For a predictive dialer strategy, the same sort of logic applies, only on a larger scale.  Most predictive dialers are built with telemarketing, not collections in mind, and are often not equipped to arrange a turnover.  You often hear nightmares about agencies calling 3 times a day (which is a pointless waste of resources, as well as likely illegal).  At one agency I managed, the predictive dialer employed there was based in SQL, so we set up a script to run each day, and set files to be called with a last worked date of greater than three days prior, simulating a turnover.  For a predictive dialer, a given agent can handle 200-300 files a day personally, and the predictive dialer can handle a further 400-800 files that result in no answer, or answering machines – thus, a file management model for such a scenario might be 1000 files a day per collector, on a three business day turnover, with a holding chain feeding files into the predictive dialer to maintain a level amount of file inventory.

What About the Creditors?

I’m speaking primarily from a third party collection standpoint, but the logic behind this file management article is equally applicable to creditors as well.  The only difference would be the turnover will likely be wider (as keeping an open line of communication with customers is different than creating a sense of urgency with a debtor), and if receivables staff are delegated to multiple tasks, they will not be able to handle as many files in a given business day.

Many companies lack the dedicated database software for managing accounts.  If your company is seeking to build an application to manage files, I can recommend software platforms that can handle 300 to 30,000,000 records.  Please feel free to contact myself if you need help researching something for your company.


Anyone can pick up the phone and demand money – there is an art to it, and certainly some of our articles address the psychology and methodology involved in presenting a debt properly to a consumer.  However, file management is even more important to maintain consistent collection results.  If you have any questions regarding your internal process, or your existing collection agency is struggling with file management, please feel free to contact myself, and I would be happy to offer some professional advice.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario