Receivable/Accounts - Information for Credit and Collection Issues

Friday, June 27, 2014

Collection Trace Strategies

This week, we are going to look at tracing and it’s place in the collection workflow.  This isn’t about how to trace, but some of that is covered here.  This is about when and where tracing can be used in the big picture.

Honestly, I believe most creditors or collection agencies do not put enough time or sophistication into trace strategy, when it has the potential to be the biggest area for lift and revenue.  The reason this gets ignored is due to technical shortcomings, or the fact that tracing has a direct cost, whether it is for manpower, or access to specific databases, and an indirect result for revenue.

Let’s take a look at a sample portfolio placed with a collection agency, and they’ve had the program for four months, and they are sitting at 20% liquidation.  The creditor wants them to hit 25%, so what would they do?  Most agencies would ‘spin the dialer’ harder to try to penetrate the avoids contact files, or put focus on the promise payments or broken arrangements.  But really, the easiest area for lift is in the trace segment, which makes up 50% of the inventory.

If the agency locates only 20% of the trace accounts in their inventory example above, and maintains their existing collection strategy (which is recovering 60% of right party contacts), they will have an immediate 4% lift without putting undue pressure on their staff, agitating consumers, or running the risk of a regulatory complaint or impact to their client’s brand reputation.

There are all sorts of bulk processes that can be used – Equifax, Trans Union, Cleanlist, Cornerstone, Info Canada and more – thousands of accounts scan be scrubbed and have valid data returned in minutes.  Of course, the cost ranges from $1.00 all the way down to pennies, depending on the relationship and volume.  But if this process isn’t used intelligently, or it’s results measured, the agency will probably see this as an extra unnecessary cost.

Manual processes  can be effective in certain circumstances as well – anything form using Google or Canada411 all the way to Teranet or Info Direct searches.  However, the cost factor is possibly doubled as you now might pay for the information service, as well as the manpower to use it.  Obviously, again, there needs to be a measurement of cost and return to validate this process.

A  Case Study – Tracing Strategy For The Win

I’ll give you an actual example that I’ve run into, and the results of our strategy that worked.  We recently received what could be considered a second placement file with 90% of the accounts coming in as trace files, or without numbers.  A typical agency would sent out the mandatory collection letter on the entire inventory, wait 6-7 days, and then start trace work.  However, as the client had informed us that the addresses were all for former residents, we knew reliably that sending a letter would be ineffective.

The first thing we did was send the entire inventory one the first day to one of the credit bureaus for a bulk scrub.  Of the files checked, 15% came back with new addresses reported after the date of delinquency, which we immediately lettered and diarized for a call 10 days later.  60% of the accounts came back with a telephone number, but the same address, which we immediately started to call and offer a letter to (and in most cases, the consumer offered to pay immediately), and the remainder came back no result.  Wrong numbers were weeded out and put back in the trace segment.  These trace files were traced manually by our team, which found about 10% of all remaining files which were then called for collection or lettered as appropriate.

The chart above is our results after 30 days.  We were at about 10% liquidation, which wildly exceeded the clients expectations, we did it quickly, and we still have the opportunity to lift the results to about 15%.  This client has never seen results like this – because of our superior collection abilities?  No, because we understood the greatest area of return.  We likely spent about $2000 in credit bureau searches and leveraged our database technology and trace manpower to achieve this result, but how is that any different than employing collectors to make telephone calls?  There has to be a positive result.

Things To Remember

Depending on the client and the ROI, each one should be set their own trace regime.  This can include performing review activity on trace files rather than just leaving them in a corner to gather dust, deciding on a budget for trace tools either for the program, or on a per-file basis, scoring the accounts and focusing the trace efforts on the high-return segment, assigning support manpower to do the hard work, and so on.

Of course, we should always remember to be mindful of the requirements of PIPEDA, and the privacy of consumers.  A wrong number, unless proven otherwise, is a wrong number and calls should stop, and third party confidentiality must be maintained until the consumer’s identify is validated.  Certainly, trace accounts should not employ a predictive dialer or other brute force collection tactic, and common sense and professionalism rule the day.

If you have any questions about trace strategies, and how you can employ them as a first-party credit manager or a third-party collection agency, by all means give me a call.  I’m always happy to discuss workflow processes, and how to improve the bottom line with some forethought.

Thanks kindly,

Blair DeMarco-Wettlaufer
KINGSTON Data and Credit
Cambridge, Ontario