You lead your collections group. You sweat the daily cash collected. How are customer retention rates? You want your staff efficient and generating good yield on customer contacts. What compliance headache do you need to address today? Are you seeing the same delinquent customers repeatedly?
All in all, very busy. And something that you likely include in your responsibilities is: what vendor products could you use to address the various jobs-to-be-done in your day-to-day work? What are your criteria for a collections product?
In this post, we examine that question, exploring five collections product criteria for vendor selection:
Not an exhaustive list, but an opportunity to step back and consider important factors that make your collections group successful. Let’s dive in.
#1: What would a potential product do that our current platform cannot?
Imagine you’ve achieved equilibrium in your collections operations. The perfect balance of engagement to maximize cash collected, maximize customer retention, reduce recidivism, and minimize cost structure. What’s left to do?
Of course, no collections group has achieved this. The complexity of its operations mean enhancing one element can have unexpected outcomes in another. And even if you did achieve collections nirvana, there will be changes in consumer behavior, competition, new products, updated management priorities, regulations, the economy, etc. that will push things back towards imbalance.
It is very likely there are areas you want to improve, and there are vendors who can help you get there. Take a considered look at your current portfolio of solutions and determine areas where you can get a good lift in outcomes. Perhaps the promise that a particular solution held hasn’t borne out as expected. How would you improve that outcome?
Separately, consider a goal you have that you haven’t met yet. Reviewing your current capabilities, can you see a path forward to achieve it? If not, it’s time to address that shortcoming.
#2: Customer recidivism goals: Can I reduce repeat delinquents with the current resources I have?
Extending the logic from #1 above, pick specific areas that you’d target for improvement. One area that must receive attention is the cash collected today. If there was a Maslow’s Hierarchy of jobs-to-be-done for collections, #1 is getting the past due customer to make a payment. The more, the better!
There are myriad products for collections on this front. Vendors offerings include:
- What communication channel a given customer prefers
- Best times to contact the customer
- Call center workflow optimization
- Making payments easy
- Collector queue management
All of these are valuable to getting the customer to make a payment today. But what they don’t do is help the customer past today. They don’t help with delinquent customer recidivism.
Customers who are late once exhibit a much higher likelihood of being delinquent in the future. Consider that for a moment. Think of a portfolio of customers who are current on their accounts. Which ones will go delinquent in the future? Really hard to know, isn’t it?
But when a customer enters delinquency, the odds of becoming delinquent again skyrocket. According to the American Bankers Association, the rate of credit card 30+ days past due was 2.96% in the third quarter of 2019. Reviewing the performance for one of Scorenomics’ credit card clients, we found that delinquent customers who cure in the month following, end up delinquent in later months at a 26.5% rate. That’s a roughly 9x increase in risk of delinquency.
Recidivism means future delays in payment, increased loan loss reserves, and strains on your collections resources. Wouldn’t it be great to reduce recidivism? The point to address it isn’t when the customer is healthy, because that’d be off-putting. Instead, when a customer has become delinquent, the collections machinery should be put in motion to reduce subsequent delinquencies.
Now take a hard, objective look at your current array of options for countering recidivism. If you’re like most financial institutions, the cupboard is pretty bare. Consider solutions that actually reduce recidivism.
#3: What is the scale and complexity of a potential product?
Companies, considering options for a variety of needs (e.g. accounting, customer service, inventory tracking, etc.), will see offerings that run the gamut from point solutions to comprehensive platforms that touch multiple parts of your organization. Your brethren in the marketing department experience this, and so do you in collections.
What scale of solution is required? Really depends on what need is being addressed. Imagine your collections group was operating off separate Excel spreadsheets updated daily. That’s a clear case of lost opportunities as that does not scale or provide visibility into performance. A wholesale platform upgrade, with all its complexity, would be entirely in order.
But most needs aren’t that complex. Nor is every offering. You’re really aiming for a solution that conceptually looks like the scale to the left. You’re going to need some level of integration for any solution worth its salt, with systems, process, and people.
The question is how much? One thing we’ve worked hard on here at Scorenomics is occupying a low footprint with our BackOnTrack® implementations. We want to make things easy, while delivering a large benefit. Wouldn’t it be great if all your vendors could say the same?
#4: What is the delivery time for a potential product?
In 2017, several academics researched what criteria corporate buyers used in selecting software for their companies. The study, Decision Criteria for Software Component Sourcing (pdf), surveyed actual buyers to understand what was important to them. Responses varied, but a few stood out as being both (i) consistently selected; and (ii) considered unanimously to be of high importance (vs. medium or low importance).
One of those was: “Delivery time”. Would you agree? The decision process for selecting a collections solution necessarily takes time. Gaining familiarity, testing, determining fit, etc. are all required before committing. But collections leaders go through this process because they can see the status quo is currently a drain on their performance.
Which leads back to “delivery time”. Once the scale of improvement is understood, every day that passes represents a continual loss of value, like a leaky faucet. Awareness breeds urgency, and long delivery times go against that sense of urgency.
The Scorenomics team has invested a lot of time and energy in making set-up of BackOnTrack a fast experience. We recognize the importance this holds for collections teams.
#5: What changes are needed to a potential product to make it work in our environment?
A defining characteristic of enterprise purchasing is the need to ascertain a product fits a company’s operations and needs. Incumbent procedures, information flows, platform functionalities, compliance policies, etc. are typically hard-won. They’ve arisen from experience and making changes to them can have unintended consequences.
Which can make it easier to alter a standard product to fit within a company’s environment, rather than change things internally. Unsurprisingly, this dynamic surfaces more with larger enterprises. They have the scope where the ripple effects of internal changes run deeper.
Generally, the fewer changes required for a vendor’s product to fit within an enterprise, the better. Some changes are often inevitable, we see those regularly. It’s the scale of the changes that’s key. In reviewing potential vendors, there should be a preference to avoid significant changes.
There are solid reasons for this:
- Delays in implementing the solution as changes are made (see #4 above)
- Maintenance for non-standard versions may be tougher to manage
- May miss out on updates to functionality that would either overwrite changes or won’t install due to the changes
Are changes to a given solution show stoppers? No. But they are a consideration in your collections product criteria.
Click here to find out how Scorenomics BackOnTrack® delivers value for your institution while keeping headaches away from the selection and implementation processes.
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