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Uncovering the Hidden Costs of Debt Collection: Improving Processes

We see it time and again in the world of debt collection: Workforce structure – the subject of our first blog post – is just as important as managing processes and procedures. And what’s more, for every obvious question, such as “What’s the best time to make calls?”, deeper questions follow. For example, “Which reports are useful, and which are unnecessary?” and “Was that pleasant-sounding 12-minute talk-off really a success if it requires four subsequent follow-ups resulting only in partial repayment?”

All sorts of inefficiencies pop up once we take a closer look at many receivables operations and whether they’re driven more by logic or tradition. Reducing operational inefficiency is especially important if an organization expects to grow or expand, because process headaches are guaranteed to scale up just the same as the business operation.


“All sorts of inefficiencies pop up once we take a closer look at many receivables operations and whether they’re driven more by logic or tradition.”


This is the second of three blog posts exploring factors that help organizations solve problems that lead to unanticipated costs and shore up their bottom line: people, processes, and technology.

Total Cost of Resolution

Business students don’t get far in their studies before encountering total cost of ownership (TCO): a bedrock financial principle that considers indirect costs. This includes things like operating a car, along with direct costs such as buying the car to begin with. If we extend this logic to the collections process, we could call it the “total cost of resolution.”

The scenario about the 12-minute talk-off that required multiple follow-ups is a perfect case in point. A cursory look at talk times and resolution rates may benefit from a deeper analysis — aided by advanced analytics — of exactly how many follow-ups happened, which channels were used, and what percentage of that effort was spent by agents vs. call center managers vs. attorneys.


As complex as these analyses might seem, the root cause of frequent inefficiency comes down to a simple human dynamic: the tendency of people to want to do things the way they’ve always done them.


“It’s not that operations executives aren’t aware of these additional costs,” said an industry veteran. “The challenge is that the primary focus is on client-reported results, especially in champion-challenger competitions. If additional calls or contacts are required to fulfill the reported numbers, they can often get overlooked in the general program workflow.” With a little scrutiny and measurement, we can reveal the real costs of all interactions — the total cost of resolution — and the process improvements that can help reduce them.

As complex as these analyses might seem, the root cause of frequent inefficiency comes down to a simple human dynamic: the tendency of people to want to do things the way they’ve always done them. This adherence to habit can make workers blind to process improvements now possible through new technologies and smart strategic planning.

For instance, maybe three full-time employees are busy with manual invoicing, even though it could be automated. Or perhaps developers are wasting time maintaining old-style productivity reports that never get used because the organization’s new analytics architecture is producing better and faster insights.

Excessive points of intermediation in the review or decision chain is another pitfall. “I’ve seen situations where a COO may ask for a report on, say, portfolio liquidity rates vs. customer satisfaction,” explained one veteran ARM executive. “But once generated, that report has to be vetted through a supervisor, director, and maybe a VP before it lands on the COO’s desk a week later. That’s a waste of both time and money.” Establishing alignment and confidence in report data, streamlining reviews, and implementing real-time report publishing options can help.

Leaning too heavily on cumbersome or outmoded legacy processes can be costly. And there’s often little justification for obsolete processes other than “it’s always been done that way.”

Fixing the Processes

So, what’s the solution? Auditing processes to remove unnecessary work or bloated hierarchies for reviewing reports or decision-making is a good start. Also, abandoning tradition in favor of logic in evaluating and setting procedures, and making sure the changes scale with the business. Be sure to distinguish between one-time anomalies and systemic problems. Spending too much time retooling processes for something that probably won’t happen again can be just as wasteful as failing to fix process breakdowns that keep recurring.

When you’ve streamlined your processes and optimized your workforce issues you’ll have made a good start on reining in hidden costs, but you won’t realize all of the potential savings available until you also examine your technology infrastructure.

 

— Gary Dorman, Director of Operations (@wrg_gdorman)

2017-08-24T13:47:21+00:00 April 13th, 2017|Blog|