The modern business world is increasingly data-driven, and companies in all kinds of industries look to key performance indicators (or KPIs) to help them understand how they're operating, - both in terms of where they're doing well, and where they could improve. The debt collection industry is no different, and just as there is debt collection software like receeve to help your people do their job well, there are also a number of debt collection KPIs that help you analyse performance and improve your debt collection operations. In this blog, the receeve team examine five of the most important debt collection KPIs and how they can help you - let's get started!
The problems debt collection KPIs can solve
Managing debt is a multifaceted process. It requires sophisticated techniques to minimise lender risk, as well as a precise grasp of data insights to shape recovery strategies. Traditional outreach methods tend to be resource-intensive and are becoming less effective with the growing reliance on digital communication. Further, locally stored data is susceptible to mismanagement, hindering companies' ability to assess case statuses and measure recovery success on a broader scale.
Fortunately, platforms like receeve eliminate many of these drawbacks. When paired with the strategic application of debt collection KPIs, which we'll discuss shortly, it becomes an effective solution for these challenges.
Standardising processes presents a significant challenge, especially for operations spanning multiple regions, given the substantial variation in collection regulations from one nation to another. The associated stress and complexity only further complicate this endeavour. However, there's no need for concern, as the debt collection KPIs we'll discuss next can offer valuable assistance in this regard.
The situation in numbers
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.
While these numbers make for stark reading, the good news is that several of the same important debt collection KPIs that improve operational effectiveness and efficiencies in your team can also help your business offset the pressures of higher borrowing and subsequent increased risk that come with it. Let's take a closer look at them now.
receeve’s 5 essential debt collection KPIs for collections teams
1) Days sales outstanding (DSO)
“Days sales outstanding” is a value that outlines the time taken for a company to receive monies owed, measured from the day the payment is due. The higher the value, the less effective the recovery strategy. In addition to the recording of separate figures for each client, an average can also be calculated to indicate company-wide effectiveness and help businesses identify signs of cash flow shortages in the future.
2) Collection effectiveness index (CEI)
A vital debt collection KPI when it comes to 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
Another crucial debt collection KPI in measuring collections success, the profit per account figure is determined by recording the gross sum of revenues collected (that is, the total revenue - operating costs) and dividing it by the total number of delinquent accounts. Here, high numbers are good and low numbers are bad, since a low number indicates inefficient recovery practices. If you see low numbers, you should address them as soon as possible, to reduce the damage done by ineffective, costly, and/or labour-intensive processes.
4) Promise to pay
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 figure 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 that 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.
Finally, by dividing the total number of PTPs kept by the number of RPCs, another important debt collection KPI - the percentage of outbound PTPs made - can also be calculated.
5) Average amount collected per agent
To truly understand your team's performance, you need 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.
Moving beyond established debt collection KPIs
While the debt collection KPIs outlined above are pivotal for any collections team to analyse their performance, they aren't the only metrics that teams operating with digital-first collections solutions should be using.
Just as 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 through features like multi-channel communication, AI/machine learning-led testing modules, predictive modelling, and aggregated dashboard views.
Data-driven collection tools offer a range of valuable functions and metrics for users to monitor, including email delivery, bounce rates, CTRs, and more. This enables in-depth campaign analysis, enhancing transparency and consistency across your collections department and broader business operations. Additionally, your customers stand to gain from more personalised communication approaches, leading to an improved user experience. This positive experience, in turn, fosters greater cooperation, understanding, and proactivity in payments. It also encourages the use of features like our self-service functionality, ultimately benefiting both parties.
If you're looking for ideas on how to boost morale and increase motivation in your department, our blog on 9 Key Ideas for Keeping Your Collections Team Motivated can help. Alternatively, if you want to learn more about the essential metrics for collections software, our piece on The 7 Essential KPIs in Collections Software is a great place to start!