May 2023
With uncertainty surrounding the U.S. economy due to inflation, housing and rental costs, and stubbornly high interest rates, most Americans believe an economic downturn is on the horizon. Combined, these economic factors drive a rise in consumer and business lending delinquencies, which are seeing some of the highest levels in over a decade. And, with delinquencies on the rise, so too is the demand for outsourcing collections.
Collections are a critical function for many industries, including financial services, healthcare, retail, and utilities. Successful first-party collections outsourcing requires providers to work as an extension of their client’s internal teams. This involves understanding their collections policies, procedures, and guidelines and working closely with the client to ensure effective and efficient collections while maintaining a high level of customer service and regulatory compliance.
In this article, we look at the common phases of first-party collections outsourced, relevant metrics, strategies, and tools to ensure success when outsourcing.
The Three Stages of Collections
Early-Stage
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Initiate contact
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Payment reminder (email, text, phone call)
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Payment request
Mid-Stage
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Increase contact attempts
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Increase urgency of payment resolution
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Offer cure plan using available tools
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Explore further actions
Late-Stage
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Charge-off debt
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Negotiate Settlement
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Legal Actions
Key Success Metrics in First-Party Collections
Dollars Per Hour is the amount of delinquent debt collected per hour worked by a collections agent or team. It is often used to evaluate productivity and efficiency, as it measures how much revenue is generated per unit of time. A higher dollars per hour figure indicates that the collections agent or team is effective at recovering delinquent debt and maximizing the use of their time. In contrast, a lower figure may suggest that improvements are needed in collections strategies or processes.
Kept Rate is the percentage of promised payments kept by borrowers and measures the effectiveness of collections agents or teams in securing and maintaining payment promises from borrowers. A high kept rate indicates that collections efforts are effective at convincing borrowers to make promised payments and reducing the likelihood of default. On the other hand, a low kept rate may suggest that collections strategies or processes need to be improved.
Conversion Rate is the percentage of delinquent accounts that are successfully converted to paying accounts. It is an important performance metric for collections agents or teams, as it measures their success in convincing delinquent accounts to make payments and become current on their accounts. A high conversion rate indicates that collections efforts are effective at persuading borrowers to pay, while a low conversion rate may suggest that strategies or processes need to be improved to better incentivize borrowers to make payments.
Roll Rate or Clearing Rate refers to the percentage of accounts that move from one delinquency stage to the next. It is an important performance metric for collections teams, as it measures the effectiveness of their strategies and processes for preventing delinquent accounts from moving to more severe stages. A high roll rate indicates that a significant proportion of accounts are transitioning to more severe delinquency stages. In contrast, a low roll rate suggests that collections efforts are effective at keeping accounts from deteriorating.
Effective Collections Strategies & Tools
Customer Service: Exceptional customer service helps build rapport with delinquent borrowers and increases the likelihood of payments being made. Agents should be trained to be empathetic, patient, and focused on finding solutions that work for both parties.
Omnichannel Support: In addition to traditional communication channels, digital channels should be leveraged to engage with customers at the touchpoint of their choosing, as they are more likely to engage with agents in a way that is convenient for them and can improve the likelihood of successful collections efforts.
Data Analytics: Using data analytics tools can provide lenders with valuable insights and help to optimize first-party collections strategies. Predictive modeling, payment forecasting, and performance tracking can improve collections efficiency and reduce delinquency rates.
Continuous Improvement: By engaging in ongoing training and development, agents stay up to date on best practices and new technologies in collections. Regular reviews of collections processes and strategies can help identify areas for improvement and drive better results.
Delayed Entry Strategy: With a delayed entry strategy, collections agents will wait for a specific period of time after an account becomes delinquent before initiating collections efforts. This allows time for the borrower to catch up on payments on their own without the need for intervention.
Effective Tool Utilization:
Loan Extensions: Extending the due date of a loan can be an effective tool to help with delinquencies. Providing temporary relief allows customers more time to get their finances in order, avoiding default and additional fees while maintaining positive relationships and allowing repayment flexibility.
Due Date Changes: Aligning repayment plans based on the borrower’s income and expenses can make payments more manageable and increase the likelihood of the borrower making payments on time. Changing the due date to a more convenient date for the borrower can help improve customer satisfaction, build goodwill, and help reduce the risk of delinquency.
Temporary Payment Reductions: Providing immediate relief can benefit both the customer and the client as it helps the borrower to manage their financial obligations more effectively and increase the likelihood of repayment. Additionally, it can help lenders avoid collection costs and maintain a positive relationship.
Loan Modifications: Modifying loan terms for delinquent borrowers can provide immediate and long-term benefits. Reducing monthly payments, extending loan terms, and reducing interest rates can be effective by allowing borrowers to manage their financial obligations more easily and reducing the risk of costly defaults.
The Benefits of Outsourcing Collections Nearshore
Cost Savings: Outsourcing nearshore can provide significant cost savings compared to internal teams or onshore outsourcing, typically at over half the cost of a domestic equivalent.
Better Performance: Nearshore teams often provide better performance across all key metrics when compared to internal teams.
Language & Culture: Excellent language skills and a cultural affinity between agents and customers is key, particularly empathy, which is critical in more sensitive interactions such as collections.
Time Zone Proximity: Nearshore outsourcing can offer time zone proximity, facilitating easier access, real-time communication, and faster issue resolution.
Access to Talent: Nearshore locations can provide access to a larger pool of skilled labor to draw from compared to domestic equivalents.
Bilingual Support: With the demand for Spanish language support increasing, high-quality bilingual support is becoming a key demand for outsourcing collections.
Flexibility and Scalability: Outsourcing nearshore can offer flexibility and scalability, as the outsourcing provider can quickly ramp up or scale down resources as needed to meet the client’s needs.
Why KM² Solutions for Collections Outsourcing?
As the leaders in nearshore outsourcing with over two decades of experience, KM² Solutions has specialized expertise and experience in collections, resulting in improved collections outcomes and higher recovery rates when compared to the client’s internal teams and its competitors alike. And, with a large geographic footprint that spans six top-tier nearshore locations in Latin America and the Caribbean, KM² not only offers the option of high-quality bilingual support but an unparalleled level of flexibility and scalability for its clients, allowing clients to quickly ramp up or scale down collections resources as needed to meet changing business needs.
About KM² Solutions
KM² Solutions ( KM2 Solutions ) operates contact centers throughout the Caribbean and Latin America, providing outsourced inbound and outbound customer service contact services for voice, chat, email, and mobile. KM² Solutions provides these services to clients in financial services, multi-unit healthcare, insurance services, travel & hospitality, eCommerce, technology & telecommunications, home services, and other sectors. The company provides clients with a host of solutions, including customer support and care, telesales & retention, claims management & processing, appointment setting & schedule management, loan origination & verifications, back-office processing, and technical support. KM² Solutions maintains PCI DSS compliance, completes a SOC 2 audit annually, and has a Compliance Management System that meets the FDIC standards.
