Wednesday, May 11, 2016

Revenue & Projections -- Part II: Moving the Numbers



 
So, we last talked here about projections and liquidation, but it really was a simplistic overview.  After all, if you have a portfolio that liquidates 30%, that number doesn’t magically appear in 30 days.  A lot of hard work goes into collections, and it’s important to know how to maximize your time and effort to get the best results possible.  Let’s look at a few areas where performance can be improved, and goals can be met.


Focus, Focus, Focus!

If you think running a letter campaign or cranking an auto-dialer get you results, I’d have to beg to differ – collections, in my opinion, is driven by experienced team members, not brute force efforts.  I’m not saying that letters or predictive dialers don’t add to the bottom line, but I believe they are just one small aspect.  With that in mind, I’m going to talk about manpower.

Assuming for the moment, you are running a manual calling campaign, you are looking at anywhere from 70 to 200 calls per day per collector on an outbound basis, and depending on age of accounts and demographics, you are probably looking at a 15-20% right party contact ratio.  If you have your collectors managing files on a three business day turnover, that means any one collector can manage 300-500 accounts on any given point in time. 

A key part of feeding a collector is refilling their portfolios as they exhaust or eliminate files.  For arguments’ sake, let’s propose the following types of files are exhausted in a typical collector’s chain:

=> 20% liquidation of all accounts in the portfolio means 60-100 files removed each month
=> 30% wrong numbers or exhausted trace files means 90-150 files removed each month
=> 15% chronic avoids contact or no contact files means 45-75 files removed each month
=> 10% refusals to pay means another 30-50 files removed or put into a different rotation each month
=> 5% disputes, deceased, bankrupt, or otherwise closed files means 15-25 files removed each month

If all the above numbers are more or less true, that means we are removing from a collectors’ chain 240-400 accounts per month, which need to be replenished to keep them at maximum capacity and keep revenue flowing.

So, if an average full-time equivalent collector needs 300+ accounts a month input, that gives you what your FTE or manpower target for manning a program should be.  If you aren’t working your files, that certainly means you can’t achieve your potential liquidation on an account.


Month In, Month Out …

Liquidation of a portfolio isn’t an overnight process.  If you letter a file on Day #1, and start calling on Day #7,  and start achieving promise payments or payment arrangements, you are going to get a collection recovery bell curve that looks something like this:



This shows a small surge of recoveries in the beginning when letters are received (and payments are mailed in or inbound calls from letters or disconnected services turn into payments), a second surge as initial payment arrangements are met, and then the tail end of recoveries as the diminishing law of returns kicks in as broken arrangements don’t pan out and numerous calls are less likely to get return calls, but there is still recovery on scheduled payments and persistent effort to reach folks.

What that means is the full potential of liquidation might not be hit for 6 months, or more.  So that means you might see the following trend in six months to achieve 20% recoveries.

Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
3%
6%
4%
4%
2%
1%

 Now as business flows to collections on a monthly basis, it can get more complicated …

Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
3%
6%
4%
4%
2%
1%
 
3%
6%
4%
4%
2%
 
 
3%
6%
4%
4%
 
 
 
3%
6%
4%
 
 
 
 
3%
6%

With the example above, it’s going to take 3-6 months to start achieving the full potential and rolling revenue on a regular flow of assignments, just by the nature of time and effort.

 
So, Where Can You Improve Recoveries?

Great question … and it’s not what a lot of collection managers think.  Look above, where we talk about file attrition.  If 10% of your files are ‘lost recoveries’ because of refusals to pay, does that mean going back in with double calls from a more experienced staff member, or churning calls on refusals which is effectively ‘beating a dead horse’, does money flow?  If you liquidate 20% on the first pass on a portfolio, and you focus on 10% of the accounts that couldn’t be recovered, and recover 20% of that 10%, that gives you a 2% lift … congratulations, you moved your liquidation to 22%.

Or … you can look at the large segments that are uncultivated, such as the trace files, or the uncontacted consumers.



In our hypothetical scenario above, we show 30% wrong numbers – now imagine if you could batch pull credit bureaus and find 40% of these accounts, and apply the same recovery rates as above.  That means 20% liquidation x 30% wrong numbers x 40% located trace accounts = a further 2.4% recovery without having to improve any other process.

A secondary solution would be to find alternate contact methods – imagine you could run an SMS text campaign to reach consumers previously uncontacted, and could achieve a 15% response rate (by the way, that’s typically what we see with third party collection texting in Canada where it’s permissible).  This means 20% liquidation x 15% avoids contact files x 15% response rate = 0.5% further recovery.

You can also look at the long game, and factor in consequences, such as credit bureau reporting or legal action, or come up with a plan to revisit previously uncooperative or unlocated trace accounts, which would be a further long-term lift on recoveries, which might achieve anywhere from 0.5% to 1% liquidation in the long run.

So, by looking at larger segments of the business and working out proactive strategies to complement your existing process, you could improve 3.4%-3.9% with the above scenario, bringing your liquidation up from 20% to 24%, without adding additional manpower or aggravating consumers.


Conclusion

Obviously, every collection portfolio is different, and different demographics or provincial or state laws dictate what you can and can’t do in a collection environment, so this addresses liquidation goals in a very abstract, general way – but it gives you something to think about when doing an analysis of collection activity, and breaking down your process to find gaps or areas for improvement.

If you have questions about your collection process, or want to talk shop about process improvement, I’m always happy to chat – feel free to drop me a line at 226-946-1730.

Thanks kindly,

Blair DeMarco-Wettlaufer
KINGSTON Data & Credit
Brantford, Ontario
226-946-1730
bwettlaufer@kingstondc.com