“Polite as possible, tough as necessary.”  This philosophy was pounded into my head when I cut my teeth in financial services as a collections representative. I gained plenty of experience balancing the polite and tough approach, having worked with customers delinquent in mortgages, cards, consumer loans and autos.  In turn, when the time came for me to take the reins of my bank’s collection department, I pounded it into the heads of my collectors. 

But how do you know when to be polite versus when to be tough?  With perfect information I would have known the answers to questions like Can this customer really not afford to pay me? and Should I make a legal referral here?  But perfect information does not exist, and the information needed to make these determinations changes depending on the type of debt being collected. 

Timing plays the key role in determining who falls into which category. Recently delinquent customers and those who are about to become delinquent generally fall into the polite category, because nothing beats getting there first.  Whether a customer needs less or more encouragement, the first creditor to appear frequently gets paid first.  While it is true that mortgages and cars get the first payments, the first credit card creditor to arrive will usually get paid before other card creditors. Remember, you are not competing against your delinquent customers; you are competing against your customers’ other creditors.

“Remember, you are not competing against your delinquent customers; you are competing against your customers’ other creditors.”

 

 

 

So how do we get there first? Shorten your queue management window. If your internal behavior scores allow 10 to 30 days to go by before you first contact never-previously-delinquent customers, shorten it to five days.  Call-capacity will be a key consideration.  If the resources are available, call early.  You may have to shorten the time frame of your agency’s “early-out” policy to accommodate the increased queue volume from calling earlier. It is likely that collections resources will have to be increased anyway in this economy with net charge-offs increasing in every loan category (following chart).

In addition to calling earlier, adjust your behavior models – using factors like changes in credit score, line utilization, deposited unemployment checks, increased NSF activity and declining deposit balances – to identify customers who are about to become delinquent.  An early-warning system can help you identify these households sooner.  Develop a strategy to contact non-delinquent but over-limit customers. Longtime customers who have recently appeared on your over-limit radar need attention before they actually fall behind. (If you have a strong relationship with a customer, he/she may be late with as many as four other creditors before falling behind with you.)  Be proactive in offering counseling services.  These can be touchy calls, consider having customer service make these calls, but the benefits to both parties are worth the awkwardness.  Non-profit credit counseling services are available and can mitigate the need to hire staff to do the actual counseling.  Review your internal policies on how you will work with these institutions.  If you have been unwilling to pay the “fair share,” reconsider that. If you were only willing to move a few basis points on rate, reconsider that.  Credit counseling services can be particularly helpful for unsecured debt.

That is about it for being as “polite as possible.” Eventually, in any prolonged delinquency relationship, things turn bad.  Halfway between delinquency and charge-off, tougher measures and postures are needed.  The pathways of work-outs, settlements, repossession, and collection agencies need to be explained to customers.  Consider “early-out” collection-agency arrangements if volume begins to rise too high.  You will need a resource to act as a vendor manager for these accounts.  Beyond the simple process management of getting accounts to the agencies, there is the audit process.  Remember, agencies will have growing volume as well; you want to make sure your accounts are getting the priority you deserve.  You always want at least two agencies and you want to make sure they know they are competing against each other.  Plus, you will be getting direct payments from customers that the agencies will want to verify – this will take at least half an FTE to manage. 

There will be those with whom you have had no dialogue.  They have just been too busy to call you and you don’t have any good contact information for reaching them.  Skip-tracing may have had a lower priority in the past, but in this economy its importance grows.  Segment your no-contacts into “known employers” and “unknown employers.”  If a customer is any kind of licensed professional (CPA, lawyers, doctors, nurses, certain contractors) and is still employed in your state, you should be able to get recent work information from licensing boards.  The Internet has revolutionized skip-tracing.  For those customers you are unable to locate with minimal work, consider making them “early-out” candidates.  Agencies sometimes have remarkable tools and abilities to locate folks.

Throughout your process, tighten up on your metrics. Ready times, abandon rates, dropped calls and talk times will have to be reviewed frequently.  Ensure you have sufficient staff for inbound calls. (You may even consider keeping a dedicated inbound group.)  Remember, this is a race.  If a delinquent customer comes to you and you cannot pick up the call, you are just giving another creditor the chance to take your payment.  You also need to make it as easy as possible for your customers to pay you: checks over the phone and credit card payments have to be part of your arsenal.  Every second that funds are in your customers’ hands is a second during which another creditor can take it.  As you review your contact rates, ensure your staffing model fits. If you built your staffing model when unemployment was half of what it is now, it might be time to review your contact rates.  If more folks are at home, you may be staffing too late in the day.

Efficiency in your process is more important today than it was eight months ago. It is likely to grow even more important in the next few months.  If you are unsure about your process, get some help.  Even if you have a sophisticated collections department, consider having it reviewed.  There are a lot of parts in this process and all need to be efficient.  Having a smoothly running system will allow you to segment your customers more finely into groups of priority that will allow you to be as polite as possible … and as tough as necessary.

Related Post:  Winning the Race: Manage Your Delinquencies Before They Happen

 

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