You can’t build castles on quicksand: the data behind the story

John’s blog last week outlined the importance of the getting the basics right with respect to managing third party collections activity. As the Lead Analyst at TDX for Platforms and Processes, my team’s responsibilities include the development, maintenance and monitoring of exception reporting for portfolios under our management. As such, this article strongly resonated with me and also allowed me the opportunity to reflect on the findings that my team have made through the analysis of over 20 million accounts with a value in excess of $15 billion.

Data gathering: “Visibility drives Compliance and Performance”

• Successful analytical teams will be focussed on analysing data and not just gathering it.

In order to effectively monitor your foundations the key requirement is visibility of all processes. As with buildings this may not be that easy unless you have a well-structured and efficient way of storing, accessing and utilising the data required. Unfortunately most systems are not purpose-built for managing accounts placed with third party collection agencies and hence this information can be near impossible, or at least require significant resource, to gather.

Account Reconciliation: “The Risk and Reward of knowing where your accounts are”

• Up to 12% of accounts are not actually where the creditors thought they were.

The first principle of sound fundamentals is ensuring that each account is being managed by the agency you think it is assigned to. Upon taking over the management of large stock portfolios we see that up to 12% of accounts are not actually where the creditors thought they were. The implications of this are significant; we often see accounts being managed by two agencies at one time which creates concerns from both a compliance and brand risk perspective. This also impacts on performance as large batches of accounts can never reach collection agencies or sit dormant on the host platform for years. The mitigation for this is weekly account reconciliation, and as with data gathering, this process needs to be fully automated and supported by actionable MI to remove the significant resource implication that this can create.

Recycling Processes: “Time affects performance more than creditors think”

• 11% performance impact from delays to recycling accounts

The process required to recycle accounts from one agency to the next in the placement strategy contains a number of checkpoints. Failures or delays are often driven by system constraints which can result in a requirement for resource-intensive manual processes to manage accounts. Again effective monitoring must be in place to ensure that the right accounts are being recalled at the appropriate stage of activity, they are being returned or disputed in a timely manner by collections agencies and they are then recycled correctly to the next agency. The importance of getting this right should not be underestimated as, for example, we have observed an 11% performance impact from delaying the replacement of accounts by one month.

Query and Dispute Management: “Customer Satisfaction, Compliance, AND Performance”

• Quicker resolution drives performance uplifts of up to 40% on disputed accounts*

Queries and disputes present both risks and opportunities. They can be easily escalated into complaints if not responded to promptly and effectively. Conversely, once contact has been made with the customer, query resolution is likely to drive payment. As such, effectively managing queries and disputes needs to be a core focus of any vendor management activity. As a result of the ~1 million queries raised across our portfolios over the past 10 years and the improvements driven over this period, we have been able quantify the benefits. Resolving a dispute within three days rather than two weeks drives a performance uplift of over 40% on disputed accounts. As disputed accounts can drive up to 30% of collections across certain portfolios, this can have a significant impact.

These examples hopefully demonstrate that developing sound fundamentals not only provides strong ‘foundations’ upon which complex strategies can be built, but also drive their own performance and compliance benefits which in isolation can be hugely significant.

*For a recent detailed case study on how these principles generated substantial returns for a large credit grantor click here.

Tom Miller, Lead Analyst Platforms and Processes, TDX Group