Collections

Part four

Improved change management process is one of the items at the very top of many collections professional’s wish list. In most legacy collections systems, the change management process is slow, expensive and labor intensive. It is not uncommon for an organization to take three, six or even 12 months to implement a system change, depending on the complexity of the request. Additionally, the expenses for a vendor or internal IT department to code, test and deploy the change can cost tens or hundreds of thousands of dollars. Aside from the cost and timelines, the impact to the business can be suffocating, particularly when the business users are unable to keep up with rapidly changing requirements.

Change control
One of the most exciting and innovative features of next generation collection management software systems is the ability to make changes quickly and efficiently, without the need for hard coding or extensive testing. Additionally, change control responsibilities can be granted to business users, who can then be empowered to make system changes, without the support of the software vendors or their internal IT departments. If desired, the change controls can be segmented or shared to ensure (via secure access rights) that only qualified individuals are empowered to make changes and that their skill and knowledge align with the assigned access. Regardless of where the control lies, the entire organization benefits from a change management process that is fast, efficient and easy to manage.

The types of system changes that benefit from modern technology include just about any imaginable task. Simple screen or scripting changes fall on one side of the complexity spectrum, while modifications to database layouts lean towards the other end. Linking to other complimentary systems and data sources is also quicker and easier which enables hooks to be implemented in days and weeks rather than months or years.

Financial benefit
The financial benefit metric of improved change management is relatively straight forward, although it is not always possible to accurately gauge the benefit ahead of the change event itself. For example, the financial value can be calculated as the benefit of the change itself (considering only the time it is in production) ahead of when it would have been deployed in a legacy environment. Additionally, we must factor the labor and fees that would have been spent to implement the change in the legacy system, less what was actually spent.

For example, let’s assume a given change adds $50,000 in monthly benefits. Let’s also assume that we can implement and test the change in a next generation system in one week, while the same change could take six months in a legacy system. The value of the faster change is then $300,000 and we have saved a significant amount of money in labor and fees above and beyond that.

One of the key benefits of next generation systems is that these collections efficiency changes can be made in days or weeks rather than months or years. Considering that in a year an organization with modern technology could design and implement many beneficial changes rather than just a handful, the return on investment increases exponentially with additional change management activity.

My next blog will be the last in this “next generation collections systems” series and brings together the financial benefits highlighted in my previous blogs in the form of an ROI case study. Common objections and relevant considerations will also be discussed.

Stay tuned!
 

Part 3

Reducing operational and overhead costs starts with the automation of tasks that would otherwise be performed by a human resource. By leveraging an advanced segmentation approach, it is possible to better identify accounts that will not require collector intervention. While automation is not a new concept to collections, significant benefits of modern systems include:
• enabling more functions to be automated;
• effectiveness of the automated functions to be validated; and
• more changes made per year versus legacy systems.

Fixing a bad phone number: The old way
To illustrate effective automation, let’s use an example where an account is found to have a bad phone number. A common approach to this problem might be for the outbound collector to route the account to a skip specialist who can perform research. This often has the receiving party starting the process after the nightly batch process has transferred the account across departments. If a phone number is found, the account may be manually routed back to an outbound queue and if not, a no-contact letter may be generated. Additionally, there are tasks that need to be performed such as noting accounts that consume a collector’s time.

Fixing a bad phone number: The new way
A more efficient and cost-effective approach would be for the employee identifying the need for a new number to click a pre-defined button to let the collections system know of the issue. The system could then automatically call out to an external data source to:
• collect the new number;
• repopulate the appropriate field;
• reroute the account back to the most appropriate outbound queue;
• log a history of all automated functions performed, and
• do all of this within just a few seconds!

If the appropriate number cannot be located, the system would know which letter to send and then route the account to the most appropriate holding queue.

Reducing operational costs
After automation, the operational costs are further reduced by identifying which actions can be effectively replaced by lower-cost options that yield the same results, or even eliminating actions that present no substantial value. For example, why make a call when a letter will suffice? And what happens if we subsequently replace that letter with a text message or take no action at all? Intelligent features of modern systems such as champion/challenger testing can be employed to support a continuous learning process that increases the financial benefits of automation as experience and knowledge is gained. As new automation is introduced and validated as beneficial, other improvement theories can be tested and subsequently abandoned or adopted.

Considering the possible impact of automation and action reductions on cost savings let’s assume that three dial attempts are made on the average delinquent account in the first 30 days at a cost of 25 cents each and on the fourth attempt there is a right party contact, which costs an additional $2.50 (assuming the talk time is five minutes). Adding one letter at 75 cents, we have a total cost to collect of $4.00 before the account hits 31 days past due. With 250,000 customers entering collections each month, we can save $200,000 each month in the early stage alone with just a 20 percent improvement. This result could easily be achieved by reducing talk time and eliminating unnecessary actions or unproductive call attempts. Annually that adds up to approximately $2.5 million dollars in savings, in this example.

Champion/challenger tests, as well as, the improved functionality of modern systems can also be extended beyond the in-house work stream. Evaluating and comparing external agencies can significantly improve agency performance as well as enable the lender to better manage placement costs.

For example, if a lender allocates 1,000 accounts to an external agency each month, with an average balance of $3,000, the total dollars allocated annually is $36 million. If 22 percent of the debt is collected and a 25 percent commission is charged, the net to the lender is nearly $6 million. Improving that return by a mere 4 percent through better allocation strategies, which is a conservative goal, we add another million to the bottom line each year. By factoring in the ability of next generation collections systems to automate most aspects of the placement process itself, including recalling accounts, we further improve efficiencies, free up valuable resources and allow management greater control of the process. Additional benefits of functionally rich modern systems also enable management to grant external resources various levels of remote access to the collections systems to better monitor activities and ensure that transactional data is properly captured. In addition to granting external agencies remote access, modern collections systems can also enable collectors to work from home-based workstations to further reduce operational costs. Many industry analysts see this as an emerging trend over the next few years, particularly when productivity can be monitored in real-time.

My next blog will continue the discussion on the benefits of next generation collections systems and will provide details on improved change management processes.

Back during World War I, the concept of “triage” was first introduced to the battlefield.  Faced with massive casualties and limited medical resources, a system was developed to identify and select those who most needed treatment and who would best respond to treatment.  Some casualties were tagged as terminal and received no aid; others with minimal injuries were also passed over.  Instead, medical staff focused their attentions on those who required their services in order to be saved.  These were the ones who needed and would respond to appropriate treatment. 

Our clients realize that the collections battlefield of today requires a similar approach.  They have limited resources to face this mounting wave of delinquencies and charge offs.  They also realize that they can’t throw bodies at this problem. They need to work smarter and use data and decisioning more effectively to help them survive this battle.

Some accounts will never “cure” no matter what you do.  Others will self-cure with minimal or no active effort. Taking the right actions on the right accounts, with the right resources, at the right time is best accomplished with advanced segmentation that employs behavioral scoring, bureau-based scores and other relevant account data. The actual data and scores that should be used depend on the situation and account status, and there is no one-size-fits-all approach.

Future related articles will dive deeper into the various segmentation approach options and explain how advanced decisioning provides additional benefit over the score-only methods.
 

Part two

Improved collector productivity and cash flow is the concept of doing more work with existing staff or doing the same amount of work with fewer human resources. In its most simplistic form, the associated metric is the number of cases worked per employee in a given amount of time. While the definition of cases worked can be open to interpretation, the most common qualifier is that an action from a pre-defined list must be executed and documented for each account.

When leveraging modern technology to achieve these results, the first objective is to channel the accounts that benefit the most from human intervention. Real-time segmentation that considers the most current status of the case is a key feature in new systems that ensure accounts are placed in the right place at the right time. This makes certain that accounts find their way to the most appropriate skill level so that less experienced staff are not overwhelmed and more experienced staff are not tasked with easier activities that distract them from solving more complex situations.
 
Context-sensitive screens and menus can further improve the productivity gains when collectors are working accounts. When collectors have the data they need to perform a task or make a decision without having to sift through irrelevant information, handling time is significantly reduced.  Refreshing the screens and menus in real time as an account status changes is another key feature in today’s technology that ensures the appropriate information is always presented to the collector.

Real-time scripting
Real-time scripting that is capable of being updated along with the changing situation is another productivity contributor, as is user-friendly screens. Not only is handling time further reduced, but gains can be found in significantly shorter training time for new staff members. Enabling the business users to change screen content, scripting, menus and visual aids on the fly is a powerful benefit of next generation collections systems. The ability to support champion / challenger testing for any visual or screen content changes further enables the organization to test and validate work stream improvements. In addition to the benefits mentioned above, advanced scripting and on-line help can significantly assist an organization to adhere to legal and compliance requirements.

Real-time segmentation
Real-time segmentation, coupled with context sensitive screens that refresh as the account situation changes (even in the midst of a negotiation) facilitate more effective negotiations. This lets collectors send more appropriate and relevant messaging to customers.  Further improvements can be attributed to enabling a holistic view of the customer relationship and the relevance and effectiveness will be more consistent across the organization. The net effect is collecting more dollars per negotiation from the same population of customers that will be contacted in a faster manner.

Real-time segmentation of accounts also provides the added benefit of keeping accounts in an active status and as a result makes your collections work stream more efficient. Not being dependent upon a batch process to update and route accounts ensures that each case is always in the right place at the right time and never in a holding pattern awaiting a transfer between work queues or departments. As a result, the organization will see more efficient case handling and a faster collection of debt.

Improved productivity and real-time dashboarding
Improved productivity reporting and real-time dashboarding enable line managers to provide appropriate feedback to collectors to make certain that Key Performance Indicators (KPI) goals are met on a regular basis. The resources in need of coaching or training can be identified before the substandard performance significantly reduces team objectives and collectors that excel can be provided with timely and accurate positive reinforcement.

Gains in productivity
When migrating to modern technology, it is very common that organizations experience at least a 20 percent gain in productivity improvement initially. This equates to the possibility of 20 fewer headcount in a team of 100 to handle the same workload. Alternatively, the existing team could handle 20 percent more accounts with approximately the same average results per account. Assuming a fully loaded cost of $50,000 a year per headcount, a 20 percent productivity boost in this example would roughly translate to a million dollars annually in financial benefit. When considering the additional benefit of reduced cost of training, this number will be even higher.

Thanks for coming back. My next two blogs will provide additional details on the benefits of next generation collections systems including reduced operational and overhead costs and improved change management process.

Stay tuned!
 

Part one

In today’s collections environment, the challenges of meeting an organization’s financial objectives are more difficult than ever.  Case volumes are higher, accounts are more difficult to collect and changing customer behaviors are rendering existing business models less effective.

When responding to recent events, it is not uncommon for organizations to take what may seem to be the easiest path to success — simply hiring more staff. Perhaps in the short-term there may appear to be cash flow improvements, but in most cases this is not the most effective way to cope with long-term business needs. As incremental staff is added to compensate for additional workloads, there is a point of diminishing return on investment and that point can be difficult to define until after the expenditures have been made. Additionally, there are almost always significant operational improvements that can be realized by introducing new technology and the relevant ROI models often forecast very accurately.

So, where should a collections department consider investing to improve financial results? The best option will probably not be the obvious choice and the mere thought can make the most seasoned collections professionals shudder … replace the core collections system with modern technology.

That said, let’s consider what has changed in recent years and explore why the replacement proposition is not nearly as difficult or costly as it once was. In addition, I’ll discuss how the value proposition typically makes this option extremely appealing today.

The collections system software industry is on the brink of a technology evolution to modern, next-generation offerings. Legacy systems are typically inflexible and do not allow for an effective change management program. This handicap leaves collections departments unable to keep up with rapidly changing business objectives that are a critical requirement in surviving through these tough economic times. Today’s collections managers face the need to reduce operational costs while improving other objectives such as reducing losses, improving cash flow and promoting customer satisfaction (particularly with customers that pose a greater lifetime profit opportunity).  The next generation collections software squarely addresses these business problems and provides significant improvement over legacy systems. Not only is this modern technology now available, but, the return on investment models are extremely compelling and have been proven in markets where successful implementations have already occurred.

This blog is the first of a four part series. I will continue to explain, in detail, the benefits of next generation collections systems while specifically focusing on improved productivity and cash flow; reduced operational and overhead costs; and improved change management processes.

Please check back soon!