A large component of third party collection agency operations is skip tracing, which means the process of attempting to locate a consumer in order to collect their account. Files are often sent to collection without current or accurate telephone numbers, email addresses, or even current addresses. This is a challenging part of recovering a client's receivables.
In most cases, these consumers or businesses have not made a conscious effort to hide from their creditors, but life has occurred -- jobs have changed, houses have been sold, relationships have caused these people to move within the same city, or even across the county. And often when people move, they leave debt behind, (sometimes) unknowingly.
So, to collect from these consumers, they must be located first.
First Party Tracing
A key factor in files going to collections is what the original creditor does when a file goes 'trace'. Most creditors do not have the infrastructure or workflow process to deal with trace accounts, however, there are many preventative steps they can and should take.
Firstly, the client can make every effort to gather accurate information in the initial customer intake process -- by gathering key pieces of indirect customer data such as landlord, personal references, or place of employment, it allows for trace efforts to lead back to the customer in the case of moving cities, changing jobs, or acquiring an unpublished number. This can have a huge impact on the success of collections later in the credit cycle.
Another key step I have written about before is having the creditor regularly validate customer information while they are in good standing. If you gather all the appropriate information at client intake, but do not refresh that data over the months or years of your customer's relationship, it is often invalid by the time a customer goes to third party collections -- also, in the process of refreshing customer information, it is a valuable opportunity for the creditor to reach out and strengthen their brand's relationship with that customer.
However, for every company, a certain percentage of files will end up falling into delinquency, and end up in third party collections. The portion of trace files sent to third party can be significant, often ranging from 20-80% of the file inventory. This deserves special consideration as part of the collection workflow.
Now, I believe that every collection agent should be exposed to the tracing process. Many larger agencies segment their trace work to a separate department, or do not dedicate enough efforts to finding debtors. If a collector is trained in the trace process, it encourages analytical thinking, a lack of elitist behaviour, and I believe, superior results in liquidation. However, they should have the tools to make their trace work effective.
One of the main advantages of a collection agency performing trace work is an economy of scale. It is quite feasible for our compan to receive 30,000 files and run a batch trace effort against the Canada Post National Change of Address (NCOA) database, or pull credit bureaus, and then target the located customers for immediate work.
Also, as a collection agency maintains a huge database of consumers past and present, it is a huge store of information that should be drawn on. Many collection agencies have a sizeable percentage of the Canadian population listed in their database for collection, pre-collection, or payment processing programs, and should be able to be drawn upon when new files are received, or have files packeted together to allow unified communication with a consumer who has multiple accounts.
Many collection agencies have access as well to drivers license records, property tax roll databases, and data scrubbing vendors, as well as employing manpower that will let a consumer be tracked down through the leads and references they have left behind.
Sometimes, because of this wealth of information and expertise, a collection agency may provide stand-alone trace services separate from collections, and charge on a per-hit basis. This allows the creditor to locate individuals who have become somewhat delinquent, but step in to try to recover the account (and the customer's ongoing business) without resorting to full collection services.
If you are an agency manager, and you take a significant client's inventory and examine a cross-section view by status, the majority of files listed will not be uncooperative files requiring a hard collection approach, nor will it be files avoiding contact requiring a higher frequency of calls through a predictive dialler -- the largest segment will be trace accounts, often upwards of 50% of the inventory. This is the area where the agency support structure should focus on to assist their collection agents.
For example, our company took on a second placement portfolio about a year ago, and the client had an initial liquidation expectation of 5% -- we were able to double the liquidation expectations, and our success was primarily based on a preliminary trace plan before calling the files. The debtors we reached for the most part were shocked and unaware of the debts being outstanding, and quickly cooperated with our office. And because our collectors knew that these trace accounts were unaware of the debts owed, we approached the consumers with some tact and discretion. Our work plan managed to generate significant returns for the client, we prevented any significant complaints, and we had several positive emails and letters to forward to the client from the consumers themselves.
If you have any questions about effective trace tools and programs available in Canada, I would be pleased to speak to you directly, whether you are a creditor, collector, or industry colleague. Feel free to reach out to me at my office at Kingston Data and Credit via telephone or email.
Blair DeMarco-WettlauferKingston Data and Credit