Annual and multi-year work plan
When the organization is about to set indicators and goals for the collection center, it must review the organization’s goals in general, derive from them the multi-year goals – usually planned for three years – and based on these, determine the specific annual goals for the center.
We will briefly present here the macro goals of the organization. Adjacent to them, we will list the KPIs that will provide organization status with these goals:
| Organisation goal | Performance KPIs |
| Profitability | Total cost of collections Bad debt expense as a percentage of the turnover |
| Cash flow | Days Sales Outstanding (DSO) Overdue debt as a percentage of the turnover Doubtful debts as a percentage of the turnover |
| Customer retention | Customer satisfaction from the collection processes Number of customers disconnected by the collection department |
Multi-year goals are set (usually for a maximum of 3 years), from which the operational indicators for the current year are derived.
Real life example
If it is determined that the debt balance of the organization needs to be reduced by 10%. Then indices will be determined for all the elements of the debt balance, that is:
New debts target
Collection target
Credits target
Write-off target
Legal proceedings target
Meeting these goals should lead the organization to a 10% decrease in debt.
New debts target
To quantify what is happening in the organization, we must monitor and analyze the debtor customers entering the debt circle and measure monthly the new debts added to the organization’s debt outstanding balance. Any change in this index indicates the possible occurrence of a problem in the collection system. A change in trend in this index could announce a change in trend in the other indices of collection (debt status, debts over 90 days, collection costs and bad debts). When it comes to the collection centers in this context, it is possible to derive from any deviation in the new debts, conclusions regarding the extent of the debts to be handled by the center.
Let’s assume that the center works at full capacity, and even manages to handle only 95% of the debts (a level that the management of this organization defined as reasonable). In this case, an increase of 10% in the new debts, predicts that we are about to enter a spiral in the treatment of debts because from this point on, our performance level will drop from 95% treatment to less than 85% and as a result, not all customers will be treated properly and on time, we will start accumulating debts and, eventually of course, we will increase the amount of bad debts of the organization.
A distinction is made between new debt forecasts and new debt targets. The new debt forecast is derived from the analysis of the debt history, assuming that what was is also what will be without external change, considering the sales targets. Sometimes, a high level of new debts compared to competitors indicates deficiencies in the sales and collection processes. In these cases, the credit and collection risk manager must examine the source cause of these changes and build a work plan to correct them and reduce the new debts, and following this plan, adapted targets for the new debts will be set. After the organizational expectations and targets for new debts are determined, we can derive from them the specific targets for the collection center:
1. Anticipating the amount of new debts, then derive from it the number of expected new customers who will enter the collection process every month.
2. From this number, we will derive the number of letters we will send to customers every month.
3. Depending on the proportion of customers who called in the past due to sending a letter of demand, we can derive the expected monthly inbound calls as a result of sending letters.
4. From the number of inbound calls, we can determine the number of representatives we need to meet the target rate of answered calls within a period. (Under the first time right assumption- FTR)
5. From here we can measure:
- The target number of inbound agents vs. execution.
- Meeting response goals (quantity and waiting time).
- Meeting the abandon target (the number of calls that are not answered and the customer hangs up – triggers additional follow-up and call-back costs).
Collection target
When the collection targets are set at the organization level, it is possible to analyze them according to past experience and set targets per collection representative considering the number of representatives determined to meet the target.
At an individual level, we can examine the performance of the collectors, target versus performance.
The collection manager will have to make sure that the total collection of all the collectors together meets the organization’s collection goals.
Credits target, Write-off target and legal proceedings target
Like the previous section, we will divide the organization’s goals by the number of representatives to obtain individual goals for the representatives in terms of credits, write-offs and transfer of clients to legal proceedings. The credit risk and collection manager will be tasked with making sure that all the collectors together meet the organization’s goals.
Monitoring the pre-collection process
Answers to the following questions will help measure the effectiveness of the pre-collection process and improve it if necessary.
- Out of the customers who entered the collection process, to how many customers were an initiated phone call made?
- Of the customers who entered the collection process, how many were dealt with within a month, without the need to apply sanctions against the customer?
- Of the customers who entered the collection process, how many updated their payment methods?
- What is the collection rate in the pre-collection phase of the total monthly collection from customers?
- What is the agent cost per customer handled? What is the ratio between collection and agent cost?
Answers to the following questions will allow us to measure the efficiency and correctness of the collection process (is the organization working according to the established policies and procedures) – to examine the effectiveness of the process and improve it if necessary.
Monitoring outstanding
- Total outstanding debt.
- Percentage of debt age change.
Monitoring the collection process
- How many letters were sent to customers? (Divided by type of letter: first warning, second warning, warning before interruption of service, warning before legal proceedings).
- What is the collection rate as a result of each letter?
- How many calls does each type of letter generate? (in quantity and percentage)
- How many calls come to reach the collection center vs. the customer care frontline?
- How many outbound calls does the collection center make?
- How much does the collection center collect? (In money and number of customers, in distribution between agents, with a distinction on the method of payment of the collected debts).
- Is every receipt collected recorded immediately upon receipt? Is every receipt associated with an appropriate invoice settled in the customer’s account?
- What is the average collection per representative (in money and quantity)? How does each representative collect compared to other collectors? Compared to himself over time? Compared to the type of customer treated. It is recommended to distinguish in the measure between outbound and inbound calls. A representative who collects through inbound calls instead of outbound calls can collect 2-3 times more volume.
- How many customers out of the total number of customers who were not handled in pre-collection paid during the collection process?
- What is the cost of treatment per representative? What is the ratio between collection and the cost of the representative?
- Number of service freezes/interruptions, over time.
Monitoring the pre-legal process
In the same Answers to these questions will allow us to measure the effectiveness of the pre-legal process and improve it if necessary. Like the pre-collection process, the pre-legal process is crucial to reduce legal collections costs and customers’ churn.
- What is the proportion of the new debts transferred to the pre-legal process (in money and quantity)?
- How many of the clients who entered pre-legal were issued a collection call?
- How many of them paid to the pre-legal team (amount and money)?
- How many letters did the pre-legal team issue?
- What is the total collection as a result of sending these letters?
- How many customers were eventually transferred to legal proceedings (amount, money and type of customer)?
- What is the cost of treatment per representative? What is the ratio between collection and the cost of the representative?