As I’ve been addressing this topic, I thought I’d give a brief overview of how we see the value chain that is collections. Others may see it from a bit of a different perspective but that’s OK. We’ve created our own view of the industry to better address the aspects of the industry that we feel need to evolve.
In our opinion, all aspects of collections start within the enterprise. We like to refer to this as “the funnel”. You may ask why “funnel”? Well, it’s pretty simple if you think about the value chain as the flow of an unpaid bill through various processes, and ultimately through to resolution or write-off. Where does this “funnel” kick off? It starts right within the enterprise at point of sale. Even before anything is past-due, it is already part of the value chain. There is an inflection point for every claim which either is paid, or not resolved, and sent into collections. I won’t go into the various timeframes for this and the different ways of labelling each time point of this process but you should get the general gist of what I am alluding to.
Hence, the majority of value of anything entering the collections process (I’ll use “claim” to label this) is greatest at the top of the funnel. This is nothing new for anyone who does sales and understands how sales funnels work. It’s just the reverse from sales. The maximum value exists when a claim enters the funnel versus from a sales perspective, where the most value is to be had at the end of the funnel. Again, and it bears repeating: the most value to be had is at the top of the funnel and you need to address the value chain here first and foremost.
At receeve, we sell primarily to large enterprises. This is the part of the value chain, within the enterprise, that is most lucrative from our clients’ perspective and that is where we can most move the needle. Of course, a typical debt collection agency would want to have as much of this value passed on to them. Hence, when an enterprise addresses the majority of the value in-house, debt collection agencies tend to get the shorter end of the stick. Nevertheless, regardless of whether the enterprise gets as much value out of a claim as possible or not, the process as well as the value chain continues outside the walls of the enterprise. No matter how effective you are in-house, there will always be claims that you cannot collect on yourself.
A claim usually “leaves” the enterprise via a servicing contract or via a sales transaction. Claims can be assigned to a debt collection agency (“DCA”) who then does “the service” of collecting the unpaid monies. Claims can also be outright sold and then the DCAs own and collect these monies on their own behalf. They have obviously, when doing their jobs correctly, purchased these claims for far less value than they can extract out of them. As part of the value chain driven by DCAs, our technology also comes into play as DCAs, just like the enterprise, are ever more driven towards digital channels and need to use technology to collect the money that drives their business model. Some DCAs will also have their own lawyers who will at the tail-end of the value chain drive their own legal proceedings to try to collect. Others will work with external, third parties to take care of the legal proceedings in court. Just as is the case for the enterprise, DCAs have to become more effective and efficient. In countries where regulations are quickly changing to the DCA’s detriment, the only way to remain a relevant player is to adopt technology.
Ultimately, debt can be sold on even further once a DCA believes they have extracted as much value as they can. Whole portfolios of debt can be sold onward, but at this point the value chain comes pretty much to an end. There is also “loss” in the value chain as claims can remain on the books at the enterprise, within the DCA, or in some holding structure after being purchased with no further work being invested.
Our theory at receeve remains nevertheless that technology can extract value throughout the whole value chain. Injecting our software as early as possible allows the greatest level of value extraction. If we can already begin nudging the customer of our clients to remember their upcoming payment, no loss needs to take place whatsoever. Throughout the value chain, by using our software, value can be extracted at each step of the process. What will ultimately happen, be it with our technology or that of our competitors, is that there will be a shift in where the most value is extracted, namely within the enterprise. The enterprise has the most benefit to gain, but also the DCAs are in a position to gain an advantage in the value chain by implementing software. This will be the topic of another blog post.