What is a Collection Strategy & How to Design One | Lockstep (2024)

FAQs

What is a collection strategy? ›

Collections strategies are a pre-defined series of actions to be taken when a collection event or trigger occurs.

By following the three Cs — communication, choice and control.

Collection Strategy Design would involve the use of descriptive analytics. Descriptive analytics would be used to comprehend the current state of data collecting, the types of data being gathered, and the methods employed to obtain them.

In a recent article for Collection Advisor Magazine, Bob Dunham wrote about the three most important aspects of any collection agency. He explained that an efficient American debt recovery should always be built around inventory management, technology, and communication.

This rule states that a creditor must not contact the person who owes them money more than seven times within a 7-day period. Also, they must not contact the individual within seven days after engaging in a phone conversation about a particular debt.

A collection strategy can help businesses minimize bad debt write-offs. A well-structured collection strategy can identify potential delinquencies early, allowing businesses to take action before the debt becomes uncollectible. A proactive collection strategy can help businesses recover more of their outstanding debts.

The most successful collection strategy is using a collection letter, which is assertive and formal. It is more effective than patient account statements or telephone calls in reminding debtors of their obligations.

Most companies prioritize collections based on which debtors owe the most, and which ones are the most delinquent. For example, if one customer owes $10,000 and is 6 months past due, they would be prioritized over another customer who owes $5,000 and is 3 months past due.

Definition. Cure Rate is a metric used in the context of Non-Performing Loan management and Loss Given Default risk assessment. It denotes the percentage of loans that previously presented arrears (where in delinquency) and, post restructuring, present no arrears.

How do you manage a collection team? ›

Collections is no different—clear, centralized communication is the first ingredient to better collections staff management. After all, if collectors don't have clear directions from managers, they don't perform as well as they could. Internal communications affect collector morale, motivation and productivity.

The multistage debt collection process varies depending on the creditor, but it usually includes phone and mail notices, stoppage of services (if applicable), notifications to credit reporting bureaus, assignment to third-party collection agencies, and potential court proceedings.

Frequent reminders – Use a series of collection letters. Multiple modes of contact – Use different forms of communication to keep your reminders in front of your debtor: email, overnight delivery, telegram, hand delivery, fax, text messages, and even social networking websites.

Maintaining Support. A customer experiencing difficulty in meeting payments can still become a good customer in the future. Consequently, it is important to show empathy and preserve goodwill while pursuing repayment of debt. This requires discretion, plus familiarity of the customer and industry.

DEBT COLLECTION STRATEGIES FOR BANKS. 1.) Update your bank debt recovery and management software. Review the technology your financial institution utilizes to interact with customers. Utilize tools that will help foster positive relationships with those from whom you are trying to gather debt.

A comprehensive collections policy should include guidelines on how disputes and deductions should be handled. Before initial contact with a customer, the collections professional should ensure that any internal issues are cleared up.

Collections management policies establish governance standards and mission-oriented principles that guide collections-related activities, incorporating all aspects of management to fulfill the stewardship obligations inherent to museum collections.