Debt management is an inherently complex process, requiring refined techniques to diminish lender risk and an acute understanding of data insights to inform recovery strategies. In most cases, manual outreach techniques are resource-intensive and are, in a landscape of increased digital communication, becoming ever-less effective. Likewise, data stored in spreadsheets and centralised on-premise systems can fall victim to poor management practices, creating yet more difficulty for agents to understand the state of their cases and measure their recovery successes at scale.
Standardising processes is a difficult task for companies operating in multiple regions, since regulations around collections vary greatly from nation to nation. But despite the innate stresses and complexity of driving effective recovery strategies, there are a few essential KPIs all collections teams should use to track their performance, understand their processes and improve on their recovery strategies in the long term.
Consider the following key statistics:
- In the UK, the average total debt per household (including mortgages) in 2022 was £63,582.
- EU Household Debt reached $7,101.9 bn in Dec 2022.
- Consumer borrowing is up by 17% due to the cost-of-living crisis.
To help your business offset the pressures of higher borrowing and subsequent increased risk, there are several pivotal markers that will boost operational effectiveness and improve efficiencies in your team. Here are the 5 essential metrics to measure your collections performance.
Essential KPIs for collections teams
1. Days Sales Outstanding (DSO)
The days sales operating figure is a value that outlines the time taken for a company to receive monies owed, which is measured from the day the payment is due. The higher the value, the less effective the recovery strategy. An average can be calculated to indicate effectiveness and help businesses identify signs of cash flow shortages in the future.
2. Collection Effectiveness Index (CEI)
A vital metric in analysing performance, the Collection Effectiveness Index is a measure of the total amount collected within a set timeframe against what was available to recover. Typically, this value is measured over longer periods of time, and it is calculated using the following formula:
CEI value = (amount collected/the amount available for collection) x 100
3. Profit per Account
Simple yet pivotal in measuring collections success, the Profit per Account figure is gathered by recording the gross sum of revenues collected (total revenue - operating costs) and dividing by the total number of delinquent accounts. A low number indicates inefficient recovery practices and should be addressed early on to reduce the damage of costly, labour-intensive processes.
4. Promise to Pay (PTP)
A Promise to Pay is an express agreement between the customer and collections agent wherein the borrower promises to pay a certain amount within a specified period. The Promise to Pay is measured by calculating the number of calls made to a debtor resulting in a promise of payment.
The percentage of inbound promises to pay is the number of delinquent accounts who kept their promise to pay through inbound calls, divided by the total number of promises to pay received via inbound calls over the same period.
To record the effectiveness of this value for outbound contact, a Right Party Connects (RPC) figure must also be gathered. The RPC value is a measure of the percentage number of calls that were required for the agent to connect to the relevant person. This value is then divided by the total number of calls.
By dividing the total number of kept PTPs by the total figure of RPCs, the percentage of outbound PTPs can be calculated.
5. Average amount collected per agent
Understanding your team’s performance means gaining insight into the average amount recovered by each agent. Fluctuations up or down in this value over a set period of time can be a good indicator of productivity changes and the overall effectiveness of the team.
Looking for ideas to boost morale and increase motivation in your department? Read our blog: 9 Key Ideas for Keeping Your Collections Team Motivated
Moving beyond established KPIs
While the KPIs outlined above are pivotal for any collections team to analyse their performance, there are a range of additional metrics available to teams operating with digital-first collections solutions.
Principally, cloud-native tools enable agents to track performance more easily and empower collections heads to refine their collections strategies at scale. They also open up a range of additional tools to diversify your recovery approach, with multi-channel communication, AI/Machine Learning-led testing modules, predictive modelling and aggregated dashboard views at the disposal of the team. These functions ensure increased transparency and consistency across your department and throughout your businesses more generally.
From email delivery and bounce rates to CTRs and detailed campaign analysis, there are numerous valuable metrics available to collections software users. This data-led approach also produces operational efficiencies that move in lockstep with business functions like lead generation, providing a better overall analysis of customer profiles and heightened business effectiveness.
Customers also benefit from account management via collections software, since tailored communications approaches can yield an enhanced user experience and foster borrower payment autonomy through self-service functionality.
Learn more about the essential metrics for collections software by reading our blog: The 7 Essential KPIs in Collections Software.