June 28, 2021 at 9:00 AM
In PART 1 of this two-part series, we explored how the current socio-economic climate resulting from the lingering financial hangover caused by the pandemic is negatively impacting the consumer's ability to settle a debt.
To help build a preventative posture to debt collection, as opposed to a reactive one, there are five basic steps to have in place, namely prevention, prediction, policy, prioritisation, and pathology. This article will follow on from prevention, prediction and policy, and deep dive into prioritisation and pathology.
As we ascertained, prevention is always better than cure and is an excellent start to ensuring people don't roll into a delinquent credit state. On the other hand, prediction allows you to create scorecards to try and predict this behaviour based on internal and external data and policy is a critical link in pulling best practice together. Step four, prioritisation, is the next in getting the basics right.
STEP 4: Prioritisation
Once it has been identified who may or may not pay and a policy framework that allows the credit provider to apply differentiated, tilted treatments to specific risk segments has been effectively articulated. The next “basic that needs to be executed brilliantly” is how to operationally deploy this strategy to ensure adequate portfolio penetration and activation rates.
This component is arguably the most challenging to execute and is probably one of the prime drivers for misalignment between risk and operations. There are so many moving parts - capacity or workforce management, contactability, agent productivity, and dialler optimisation. Prioritisation requires a carefully considered approach to maximise portfolio yields.
It is a good idea to create clearly articulated collection and recovery calendars that specify:
- What campaigns are being run and when they are to be retired
- What solutions are being executed – multiple offerings can be run in parallel
- When is the optimal time to call an individual?
- When should you retire accounts from dialler campaigns and escalate them to trace activities
- The creation of a combination of predictive and preview dialler campaigns
- Alignment between capacity and likelihood of debtor engagement to help avoid redundant agents and idle dialler time
- Monitoring the outcomes of productivity and granular dialler campaigns to ensure appropriate risk mitigation inherent in a portfolio.
Several software models can facilitate and enhance this process by calculating the required productivity and performance outcomes needed to support given collection targets. These models extract salient operational data to provide insights and validate real-time decision-making.
STEP 5: Pathology
Finally, suppose one considers the extent of actual collection and recovery activities and the outcomes generated in a real-time environment for a mid- to a large-scale credit provider. In that case, it is a business-critical requirement to have superior insights at a strategic, financial, and tactical level.
These insights and business intelligence are drawn from various platforms such as host, dialler and collection/recovery systems and should be able to tell a compelling story in terms of the following key metrics. For example:
- Portfolio yields and collection/recovery rates per propensity-to-roll or pay segment
- Transition matrices to track the movement of delinquent balances
- Granular campaign outcomes - the relationship between attempts/connects/right parties and promise-to-pay outcomes
- Granular campaign penetration - the extent of accounts worked and activation (payment) rates
- Productivity and capacity management by way of operational insights in terms of accounts worked/not paid; accounts worked/paid; accounts not worked/not paid, and accounts not worked/paid
- Underlying costs to collect and recover
- NAEDO/AEDO tracking in the past, and now DebiCheck and its outcomes
- Compromise/settlement performance
There are many other important metrics, but broadly speaking, if there is adequate coverage in terms of the above, there should be a good understanding of cause and effect.
Getting through the Covid recovery process with minimal side effects
In summary, the ability to optimise collection and recovery outcomes rests on several key pillars synthesised by the five themes we have discussed: prevention, prediction, policy, prioritisation, and pathology.
This is not to say that other components – such as performance management, practitioner management, and regulatory management - are not fundamental to the success of any credit provider navigating the increasingly precarious South African debt enforcement process.
However, get these disciplines right, and you are well on your way to getting through the “recovery” with reduced collection and recovery side effects.
If your business needs help with post-pandemic recovery, contact us.
If you missed PART 1 of this two-part series, click here.