Firstsource - US Strategies To Improve Collections

Page	1 \| 2 \| 3
Download pdf

Article

REVIEW U.S. STRATEGIES TO IMPROVE COLLECTIONS

by Rahul Basu,

Executive Vice President, Collections, Firstsource

The US has always traditionally led the way in the credit market, so how could UK collections agencies benefit by reviewing the strategies?

The level of personal debt in the UK is at a record level of around £1.3tn, up from about £400m in 1993 and is being pushed even higher by rising interest rates.

The impact on many large UK companies is that more of their customers are falling into greater debt and are finding that debt harder to pay off. Two business sectors that suffer from very high levels of uncollected and unsecured debt are credit card providers and telecom companies. What should these organisations do?

An advisable strategy would be to review the practices of the US collections agency sector, which, historically, has led innovation in the US market and enabled it to recover generally greater levels of debt, at lower cost, than the UK industry.

The relative immaturity of the UK collections agency market means that it is highly fragmented, with many providers – few dominant companies have yet emerged. Talking with customers in an empathetic and sympathetic way not only helps to collect funds, but can also strengthen the relationship between the customer and the client brand.

As a result, US corporates and debt companies make greater strategic use of the agency sector to recover their debts than their counterparts in the UK.

The size of the industry

To some extent, the comparative success of the US collections market relates to the longevity of the industry in the country and the size of the population.

Debt collection as an organised activity started about 40 years earlier in the US than in the UK, and the US' 300 million population versus the UK's 60 million and the commensurate higher level of debt in the States has been a catalyst to innovation in collection strategies and practices. To contrast the size of the markets, in the UK, for instance, the collection agency trade body the Credit Service Association's members handled debts worth £21bn in 2006, whereas in the US, Visa and MasterCard issuer charge offs alone were worth $114bn in the same year.

Regulation has also played an important role. The UK has an emphasis on data protection, which is clearly positive, but it is not nearly as regulated as the US in terms of debtor contact strategies. This level of regulation in the US has forced the country's industry to be highly creative in its approach to developing business solutions. Innovation by US collections agencies. There is much that the UK collections industry could gain by analysing the innovation of the US agency sector.

The key areas relate to IT and analytics, creative human capital management strategies, marketing, building offshore delivery capability, and extensive use of continuous process improvement methodologies like LEAN Six Sigma and Kaizen. These kinds of investments enable leading US collections agencies to generate a 5 to 10 percent increase in funds collected for clients, normally within the first three months of operations, resulting in cost savings of 15 to 20 percent, often from month one.

Top

Download pdf

Page

1 | 2 | 3