Collection Strategies – One Size Does Not Fit All

In a previous post we covered the basics of collections strategies. Recall my previous example:

  1. When the past due balance of an account hits a certain threshold, send a “friendly” reminder requesting payment
  2. If 5 days pass and there is no response or payment, send a “serious” reminder
  3. If another 5 days pass and there is no response or payment, initiate telephone contact with a credit hold warning.
  4. If another 3 days pass without response or payment, place the account on credit hold

All collection strategies should be tailored to fit your customer’s account type and risk profile. For smaller, less established accounts, it’s probably appropriate to send reminders automatically, and possibly appropriate to put some unresponsive accounts on credit hold automatically. For more established accounts, you could automatically generate reminders, but would likely want the responsible collector to review and approve each action, particularly anything that would disrupt the ability of the customer to buy. You would also set the thresholds that trigger collection activities are levels appropriate to the target account set.

To facilitate this flexible approach, it’s best to establish a framework that categorizes account type and risk. A simple account category schema, with hypothetical volume ranges, could be:

  • Mom and pop – open balance <$1k
  • Small account – open balance (1 to 10k)
  • Mid-size account – open balance (10 to 100k)
  • Large account – open balance (100 to 250k)
  • Top account – open balance (>250k)

A simple risk category schema could be:

  • Risk 1 – Good credit, reliable
  • Risk 2 – Good credit, needs prodding
  • Risk 3 – Fair credit, needs prodding
  • Risk 4 – Fair credit, watch closely
  • Risk 5 – Marginal credit, intervene quickly

Utilizing this framework, smaller or more risky accounts, would receive automatic dunning emails with notifications to the collector. The thresholds used to trigger these actions would be set to a fairly low dollar amount (or percentage) past due. For the most risky, the days between steps could be reduced from 5 to 2 or 3, and one of the intermediate steps, such as the serious reminder, could be eliminated to go directly to the credit hold warning quickly. Less risky, larger accounts would have higher thresholds and most collection actions would be queued for collector approval rather than automatically taken.

For the sake of brevity, my example is very simplistic, but serves to illustrate the concept. Start with a general set of rules and adjust them to fit each account type and risk level. Automate where actions are clear. When judgement is needed, use the system to drive your collector’s attention. Have the system recommend the appropriate course of action, but allow the collector to approve or override it when needed.

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