Computer technologies and internal information systems
When we refer to automation in the collection process, the emphasis is mainly on the processes facing the customer, i.e. – sending letters, automatic dialling to the customer, sending e-mail messages and text messages, as well as disconnecting the supply of services or products to the customer – all following the organization’s collection policy.
The collection manager must try to accurately assess the expected efficiency following the automation of the process and consider the real benefit that will accrue to the organization as a result of it. The examination should include a comparison between the cost of the developments and the future return on the investment, as well as the effect of the automated processes on the customer retention aspect. Sometimes, highly effective automated processes cause the churn of customers (also debtors in this case) precisely because of their uncompromising efficiency: although the immediate goal of collections is achieved, the loss of the ability to exercise discretion in that part of the process turns the blessing into a curse.
Periodic activity surveys (organizational collection meetings)
The periodic collection meetings are not a substitute for the day-to-day activity of monitoring the collection of funds and its efficiency but are intended to report on the current collection activity, on the plans for the coming period and to deal with exceptions in a systematic manner.
These meetings should be held on a regular periodic basis (recommended once a month, close to the date of issuing the financial statements and receiving the monthly closing reports. They will be attended by the collection manager, the collection personnel (the collectors who handle the issues discussed) and those in positions in the organization related to the handling of exceptions that will be raised at the meeting. Meetings Collection outside the current framework must be carried out if and when unusual events are discovered that require urgent attention.
The summary of the meeting will be in a fixed format that includes the names of those present, a summary of the discussion, the list of approved decisions and the rejected items. Also, next to each decision, a responsible party and an implementation schedule will be indicated. The material that will be discussed at the meeting will be sent to the concerned participants at least three days before so that those present will arrive with the necessary information for an effective discussion that will lead to a decision (including customer-related information). The material sent in advance to the participants should include the reference to the various factors for the reason for the non-collection of the debt, as well as all the details necessary for decision-making, such as:
- Full details of the customer.
- The type of client (strategic, large, medium, small, tiny).
- Monthly or annual sales turnover.
- the amount of the debt.
- The age of the debt.
- Did the customer receive or require a credit and the amount of the credit.
- Summary of the collection process so far.
- The reasons for non-payment.
- Description of the request for a decision and a proposal for further dealings with the client.
The issues that will be raised at the meeting will be based on the highest urgency to be addressed. Example criteria: amount of overdue debt balances; the depth of the debt in days of arrears; Issues of high importance and risk level, etc. All this, to optimise the distribution of the organization’s resources – despite the saying “a penny is worth a hundred”.
More key principles for a successful collection session:
• The implementation of summaries from the previous meeting should be examined at the beginning of the meeting.
• Those who performed their work effectively should be praised (and vice versa).
• The current update will include stings, credit abuse, what is happening in the industry, new business information that has arrived, etc.
• The collection manager will share with those concerned all the information found in the collection system and will not hide information.
• The decisions must be clear and precise: who does what – letter, meeting and other details – until when, who is reported to, what happens if the goals that have been set are not met.
• It is important to discuss issues such as client disconnections, setting conditions for terminating the commercial relationship with the client, collection enforcement, and more.
• the decisions must be agreed upon by all the participants, but there is no obligation to it, depending on company policy.
Incentive programs for collectors
There are different and even opposing opinions on the issue of the use of incentives for collection; Some of the collection managers firmly believe that the incentives corrupt the system and that proper management of the workforce must in itself “deliver the goods”. We will present here the issue and the ways of carrying it out and leave the choice to the management of the organization or the finance manager, each case individually. In collection centres, the issue of incentives is important as an effective way of managing the tasks and the manpower to carry them out, and we will discuss in detail the indicators and incentive systems for collectors in a contact centre.
When applying an incentive system to a collection department, we must consider several main considerations and guidelines:
• The incentive system should encourage the achievement of the organization’s collection goals. Sometimes, using the wrong method can lead to negative results. We will illustrate with an example:
Let’s assume a method of collection incentives based only on the amount collected per month.
According to this method, the collection representatives have no interest in quickly solving the customers’ collection problems. On the contrary, if they get the customers used to always paying two months late, the customers will be very happy, and the debt collectors will constantly collect debts in arrears. The solution to this is to build an incentive system based on both the status of the debts and the age of the debts.
• There should not be too many incentive components:
Let’s assume a very sophisticated method that gives a weight of 10% to each of ten different components. Because of the small weight of each component, the influence of the representative on each of them will be small and will not ultimately affect the weighted score.
The agents themselves might be confused about what matters to the firm and lack focus on essential goals.
• It is advisable to determine at least one level of increased effort.
For example, an incentive of X per cent up to a collection amount equal to 90% of the target and X2 per cent for each additional dollar, pound or euro, will encourage the collectors to always reach beyond 90% of the targets. Similarly, a fixed bonus can be offered for exceptional achievements.
• It is desirable that the incentive be imposed as a percentage of the employee’s salary and not as a percentage of the debts collected, in order not to lose control and reach costs that are disproportionate to the salary itself.
• One should carefully consider whether to set a ceiling for incentives. On one hand, this way a reasonable level of costs is maintained, on the other hand – as the amount approaches the incentive ceiling, the agent’s motivation to continue collecting will decrease, and the agent may even act to postpone collection to the next month.
• A solution must be established in advance regarding unusual collection. Some debt collectors manage to collect a debt from one customer in an amount much higher than their target. The incentive system must address the possibility that employees will be tempted to devote all their time to collecting one large debt at the expense of a large-scale activity.
In conclusion, there are countless incentive methods and of course – even more ways to circumvent the incentive system at the expense of harming the organization’s collection goals. The collection manager must be alert to what is happening in his department and constantly examine whether the system in use is indeed empowering and contributing to the organization more than it is harmful.
Professionalization of collection
Professional knowledge, personal skills, and training
Effective collection requires a training program suitable for the needs of the collection representatives. If the organization is unable to provide a training program, the collection manager must arrange for appropriate training in all of these topics:
- Knowledge of the operational systems: this is a basic requirement that is not always met, sometimes the collection managers forget that the debt collection agents are first and foremost service representatives and need to be familiar with all the organization’s systems.
- Acknowledgement of the organization’s sales and credit policy: if the collector can diagnose during a conversation that the customer does deserve a credit, he will be able to take care of crediting the customer himself, thus shortening the customer’s collection process.
- Knowledge of the credit and collection policy: what are the criteria for granting credit to customers? What are the credit terms offered to customers? When do you transfer a customer to collection processing? How is the collection process carried out? When do you stop contacting the customer? When do you transfer a client to legal proceedings?
- Knowledge of the organization’s products: the collection worker must understand the business and the details and differences between product to product, service to service.
- Understanding of the customer’s needs: If the collector can identify the customer’s needs and is knowledgeable about the organization’s credit and collection policy and its various products/services – he will be able to progress independently up to a certain stage, offer suitable solutions, and even achieve collection while maintaining on the business relations with the client.
- Basic accounting understanding: this is required for the collection agent at least as far as understanding the customer’s account and the sales or crediting processes. The collector should be aware of the consequences of each sales document (invoice, credit, refund, shipping certificate, exchange certificate, receipt, check, etc.) on the customer’s balance and the customer’s account in the organization’s accounting.
- Basic legal understanding: the agent needs to know the characteristics of the client’s legal entity and to act accordingly; to read and understand the contract with the customer and its implications for the collection process; and to find out the basics of the available legal documents (such as a promissory note, lien, etc.).
- In companies where the billing and collection processes are automated, the collections agent must understand the automated processes that take place in the organization and understand their effect on the customer’s account and the customer’s debt balance (such as the process of producing an invoice, when it was sent, when it was collected when demand letters are sent, etc.).
- The agent must be familiar with the clearing processes of the methods of payment and what is required to ensure their integrity (both on the organization side and on the customer side).
- Finally, the negotiation skills of the collection representative can be taught or strengthened through appropriate training on the subject.
Setting up an employee profile
The optimal profile of the collection department employees will differ from organization to organization. For example, in one organization the collector is a field person who goes to meetings with clients and in another organization he is a telephone collector, who performs his work from the office. Despite the difference, in our opinion, it is necessary to observe a number of personality characteristics that are essential to the work of the collection agent, as well as important fundamentals of knowledge, some of which are acquired on the job:
- Ability to manage the collection negotiations)
- Good human relations
- Service awareness
- Ability to work in a team
- Systemic vision
- Ability to activate external units for collection (internal units in the organization, external lawyers, and others)
- Efficiency in time management
- Pleasant appearance (for collectors who carry out area collection)
- Educational background: Economics and accounting are an advantage
- Basic knowledge: the basics of debt collection law, the customer as a legal entity, banknote laws, methods of payment and collateral, contract laws, liquidation laws, bankruptcy, insolvency, and enforcement is an advantage
- Experience in similar work in other organizations is an advantage
- Extensive knowledge of the organization’s information systems and basic information systems
- Knowledge of the organization’s products
- Necessary training – collection skills, personal skills, negotiation, vulnerable customers, treating customers fairly, complaints handling