Credit Risk Connection – Top Tips
The appropriate allocation of collections accounts to collections resources and the prioritisation of accounts within each collector’s work queue are often overlooked as a means of improving collections results. Typically, delinquent and out-of-order accounts are segmented into account groups or classifications, using a combination of delinquent stage, ever paid status, time on books, account balance and risk. These account classifications then receive specific treatment based on the segmented group. For example, accounts that are 1 cycle delinquent and are less than 6 months on books may receive an educative customer service action.
Where collectors are used for specific outbound calling actions on these groups, it is crucial that appropriate account allocation and sorting is set to optimise collections results. The following tips are proven best practices, used by successful collections departments all over the world:
* Ensure that collectors receive similar accounts in equal proportions
By assigning similar delinquent volumes and balances to different collectors in a collections classification, collections managers can accurately measure collector performance. Moreover, collector rewards, such as incentives schemes, can be objectively determined.
* Ensure operational re-allocation of accounts
Typically accounts are assigned to collector queues for at least one month. When a collector is absent from work, it is vital that collections management can assign that collector’s accounts to available resources. If a temporary replacement resource is not allocated, then collections management will need to assign the absent collector’s queue, in equal proportions and balances, to the other available collections resources.
* Sort collectors’ queues by descending balance and risk or balance at risk
The ultimate aim of collections is to reduce bottom-line write-off losses. Reducing write-offs is achieved by ensuring that collectors are focused on accounts with the highest loss potential. In organisations where behaviour and recovery scoring are not used, it is best practice to sort accounts by descending balance. A high-balance, delinquent account carries more write-off risk than a low-balance delinquent account. Where behaviour and recovery scoring is used, collector queues may be sorted by the risk level or projected recovery of delinquent accounts. Leading edge organisations sort collector queues using balance at risk, which combines account balance and the risk (or recovery) projection to determine the ‘at risk’ balance. For example, a lower balance account may carry more risk, resulting in a higher loss potential than a high-balance, low-risk account.
Watch this space for the next Credit Risk Connection Top Tip!
About the Author
Stephen J. Leonard, Founder & CEO, Credit Risk Connection
Stephen J. Leonard is the Founder and Chief Executive Officer of Credit Risk Connection, a risk management consultancy and value-added reseller of analytics, consulting, CRM, scorecards, software and training. Stephen has over 25 years’ of specialist credit risk management experience in the emerging markets of Europe, Middle East, Africa and South Asia. He has managed assignments with over 150 clients in 30+ countries, covering the entire credit life cycle and the complete range of organisations and products in the consumer credit, SME and credit bureau industries. Stephen holds an AS, BA and MBA and can be contacted at SLeonard@CreditRiskConnection.com