Do You Know the Score?
Do you know if your collection agency is scoring your unpaid customer accounts? If you don't know, you need to find out. Scoring accounts is becoming more and more popular with these agencies because it keeps their costs low. However, scoring doesn't usually offer the best return on investment for the agencies clients.
The Highest Costs to a Collection Agency
All debt collection agencies serve the same purpose for their clients; to collect debt on unpaid accounts! However, the collection industry has become very competitive when it comes to pricing and often the lowest price gets the business. As a result, many agencies are looking for ways to increase profits while offering competitive prices to clients.
Unfortunately, depending on the techniques used by individual agencies to collect debt there can be big differences in the amount of money they recover for clients. Not surprisingly, popularly used techniques to lower collection costs also lower the amount of money collected. The two most expensive component of the debt collection process are:
€ Sending letters to accounts
€ Having live operators call accounts instead of automated operators
While these methods traditionally deliver excellent return on investment (ROI) for clients, many debt collection agencies look to limit their use as much as possible.
What is Scoring?
In simple terms, debt collection agencies use scoring to identify the accounts that are most likely to pay their debt. Accounts with a high probability of payment (high scoring) receive the highest effort for collection, while accounts deemed unlikely to pay (low scoring) receive the lowest amount of attention.
When the concept of €scoring€ was first used, it was largely based on a person's credit score. If the account's credit score was high, then full effort and attention was deployed in attempting to collect the debt. On the other hand, accounts with low credit scores received very little attention. This process is good for collection agencies looking to lower costs and increase profits. With demonstrated success for agencies, scoring systems are now becoming more detailed and no longer depend solely on credit scores. Today, the two most popular types of scoring systems are:
€ Judgmental, which is based upon credit bureau data, several types of public record data like liens, judgments and published financial statements, and zip codes. With judgmental systems rank, the higher the score the lower the risk.
€ Statistical scoring, which can be done within a company's own data, keeps track of how customers have paid the business in the past and then predicts how they will pay in the future. With statistical scoring the credit bureau score can also be factored in.
The Bottom Line for Collection Agency Clients
Scoring systems do not deliver the best ROI possible to businesses working with collection agencies. When scoring is used many accounts are not being fully worked. In fact, when scoring is used, approximately 20% of accounts are truly being worked with letters sent and live phone calls. The odds of collecting money on the remaining 80% of accounts, therefore, go way down.
The bottom line for your business's bottom line is clear. When getting price quotes from them, make sure you get details on how they plan to work your accounts.
€ Will they score your accounts or are they going to put full effort into contacting each and every account?
If you want the best ROI as you invest to recover your money, avoiding scoring systems is critical to your success. Additionally, the collection agency you use should be happy to furnish you with reports or a website portal where you can monitor the agencies activity on each of your accounts. As the old saying goes - you get what you pay for - and it holds true with debt collection agencies, so beware of low price quotes that seem too good to be true.