Integrating global risk objectives into collections.

Beginning with credit card banks and spreading through larger financial services companies, "soft skills" in collections have become increasingly important. With soft skills come an emphasis on penetration rates that can improve the likelihood of contact with delinquent borrowers and improve delinquency results. Collection activities are being shifted to evenings and weekends, or prime time, in an effort to improve right party contact rates versus leaving messages with third parties or answering machines.

Collection organizations are in competition with a number of creditors for wallet share of the borrower's limited income towards a delinquent payment obligation. Best practices organizations are focused on optimizing the right party contact rate. Achieving the rate requires optimal performance in several important areas.

Effective Use of Collections Resources

Whether the bank uses dialer lists or collection queues, the key objective is to maximize the use of resources (collectors) involved. Utilization is measured by the gap between paid production hours versus actual production hours used. Surprisingly, most organizations leave a lot of opportunity on the table by not using paid resources efficiently. While industry-best teams achieve utilization rates in excess of 90% in the production process, the average is well below 65%.

This 10%-versus-35% gap is not usually a technology-related matter; rather, it is a management skill. Many organizations do not have adequate reporting to gauge utilization effectively and are unaware of potentially large utilization problems. On a dialer, this is an easy measurement to track. For nondialer queues, the length of "active" time a collector was logged into the queue can also be tracked.

Organizations generally should plan their capacity requirements around expected penetration requirements for their portfolio. When the utilization rate is maximized, it ensures that resources used in the production process are managing their workloads. As the utilization rate falls, it is no longer possible to penetrate the portfolio at levels deemed appropriate to generate an appropriate level of contacts, despite incurring the unit costs in servicing. The cost of this failure is a rise in delinquencies and losses.

Penetration is the intensity of effort in the production process. Essentially, any outbound call to a delinquent borrower, or an inbound call from a borrower to a collector, represents an opportunity to influence borrower behavior to obtain payment. Industry-best teams are achieving penetration rates in excess of 250% on a daily basis. That is, they process the delinquent list an average of 2.5 times per day or greater. For these organizations, the incremental cost of servicing represents an appropriate premium for lower portfolio delinquencies and losses, which can impact cost of funds. An alternative method, discussed later in this article, can provide the added benefits of penetration without incurring the additional staffing and related costs.

An increase in penetration increases chances of contact. However, the goal is not gross contacts, which can include messages left with third parties. In fact, the penalty for calling at the wrong time is an excessive amount of ineffective contacts that end up increasing unit costs without helping portfolio performance. Successful contact, that is, a right party contact, occurs when calls are scheduled during those hours most likely to generate a direct dialogue between collector and customer; therefore, managing this process successfully requires a larger percentage of total hours during "prime time." By definition, this includes weeknights from 5-9 p.m., Saturdays from 8 a.m.-12 noon, and Sundays from 3-9 p.m., all in the borrower's time zone.

Industry-best teams are managing more than 75% of total scheduled hours in prime time in order to maximize right party contact rates. These organizations have increased part-time labor in collections, where scheduling around the business' requirements and peak …