How do you know if your organization's collections efforts are successful and how they compare to similar organizations? Like any functional area, it's important to measure your organization's collections success so you can evaluate your current system and make changes with an eye toward improving results.
To assess the success of your collections, you must have a thorough reporting system in place; without effective reporting, it's impossible to judge results objectively and pinpoint issues. Here are the elements you'll find in an effective collections report:
Penetration rate (number of contact attempts/number of accounts)
The penetration rate tells you how many times your collectors are attempting to contact a debtor. At a minimum, you want a penetration rate of 1 or 100% because that would mean your collectors are attempting to contact each debtor only one time.
Right-party connection rate (number of correct debtors found/number of overall attempts to contact)
The right-party connection rate measures how often your collectors are reaching the correct party and, therefore, is a gauge of how much time your collectors spend on phone calls that have no chance of resulting in payment. It's reasonable to expect collectors often must call around before finding the right debtor, but if your report lists a right-party connection rate of less than 10% (0.1), you should view this as an efficiency issue. In such a case, your collections team should change how they establish identity and search for contacts.
Conversion percentage (number of accounts in collections that resulted in promise to pay or payment/total number of accounts in collections)
Conversion percentage provides a simple measurement of the overall effectiveness of your collections operation. With it, you can see the percentage of delinquent accounts that have promised to pay or made a payment. Since payment is the end goal of your collections efforts, you should scrutinize your team's conversion percentage regularly, using it as a key measure of success.
Balances impacted (number of delinquent accounts that have made payment toward balance)
Balances impacted is another useful number that helps you measure the overall effectiveness of your collections operation because it reports the number of delinquent accounts that have made a payment. By viewing balances impacted, you can see the number of times your collections team's efforts brought in actual dollars.
Your collections team requires a lot of effort, organization, and labor. How do you know whether those investments are paying off? Make sure your team is as efficient and effective as possible by regularly monitoring available measurements. For help figuring out when to use your own team or outsource collections, check out our ebook.