When analyzing your collection practices, two of the strongest indicators to remember are the rate of recovery and the rate of settlement effectiveness.
According to the Federal Trade Commission, debt collectors are one of the most complained about businesses and with good reason.1
The risk of write-off rises exponentially with each passing week after the debt holders have gone past due, it is important to deal with an unpaid invoice as early as possible.
You need to be inquisitive about the job requirements, organizational processes, and monitoring procedures of the department. Read on to learn about the questions you have to ask, how they can influence your business (like getting a loan), and when you should be suspicious about the performance of the debt collection department.
What are the benefits of good recovery Rates?
In the debt collection game, the pace of recovery of income relates to the ability to reclaim money owed to former debt holders. These estimates are usually interpreted as a proportion of the money collected from the overall past debt owed.
As “success” is typically accomplished by settlement, the success rate is the proportion of accounts that are settled relative to the total number of available past-due accounts.
Unsuccessful accounts are write-off accounts. Considering these trends over time within specific industries and markets offers insight into the right planning for future accounts.
What factors influence the success rate of the Agency?
Accounts that have been due for more than 6 months are recoverable in half of the total cases. After 12 months, the chance decreases to just around 25%. Clearly, speed is the answer to success in debt management.
Other factors that may influence the success rate of the Agency are mostly internal. Metrics that you should put out include the number and experience of their collectors, as well as “work standard” aspects such as the number of phone calls they make during a given amount of time, the settlement authority, and many others.
What if I hire a debt collection agency?
Since the success metrics are also critical measures of the debt collection agencies’ competence and the outcomes that can be projected to be accomplished, under-performing debt collection agencies may be less urgent in their hard metrics.
This means that if you evaluate an agency that promises to be better than other agencies without disclosing hard numbers, be careful. It is better to avoid organizations that tend to talk in general rather than disclose their actual figures for your reference.
Performance rates are not consistent, particularly in specific industries. This ensures that current recorded performance rates can not be assumed to be moved automatically to other markets for future accounts.
