The combined force of marketing and collections
By Peter Taylor, Credit & Collections Director
© From an article written for Argent magazine, Vol 8 issue 1, published by The Financial Services Forum
By supporting and bringing to bear the most effective marketing techniques to the collections world, marketers are not only likely to face up to their biggest marketing challenge, but their greatest opportunity yet says Peter Taylor from Fraudscreen.
Despite financial services firms showing tentative signs of recovery after two years of falling business volumes and profitability, the level of bad debt or non-performing loans within the sector is still increasing at a rate of 37%. Against this backdrop and with more and more consumers falling behind with their payments, marketers can no longer afford to be divorced from the realities of debt, and the way it is handled and collected. Typically left at the feet of collections and recoveries – an all too often forgotten and hidden department – consumer credit providers could be missing out on considerable revenues if this division continues.
Marketing and collections to be joined at the hip
Although at first sight the disciplines of marketing and collections may seem poles apart, closer inspection shows distinct similarities. At its heart, marketing is all about persuasion and the influencing of behaviour. The same is true for collections, where the focus is on persuading people to pay an outstanding debt. By recognising these similarities, more forward-thinking financial services firms are beginning to break down the barriers between the disciplines with significant commercial advantage.With collections springing into action when a customer misses a payment, or even before, for businesses with sophisticated pre-delinquency strategies, the greater alignment of marketing and collections enables businesses to increase returns from collections activities. For example, assigning more intensive collections action, and resources, to the customers where it has the most impact on their behaviour and ultimately on their intent to pay – or simply tailoring the way they speak or write to a debtor dependent on the likely payment outcome. This targeted approach takes its lead from marketing to identify where more effective collections action can be taken, more quickly with better immediate and long-term results.
At the same time, marketing has much to learn from collections, not least the impact of marketing on the collections process – whereby failing to predict payment intent in campaigns for acquisition and retention increases the number of bad debt accounts ending up in collections in the first place.
The principal notion here is that marketing analysis should look beyond conversion and incorporate payment performance, to take a longer-term view of customer value. Indeed one client from the home shopping sector that took this approach saw bad debt reduce by an average of 45% over a twelve-month period.
The combined approach
In segmenting debtors for tailored collections actions, it is neither the least risky customers (have a strong intent to pay and will pay anyway with a gentle nudge) nor the most risky (will not, or cannot, pay no matter what action taken), but the group in the middle where intervention can make most difference.
Identifying the people at each end of the spectrum, through a combination of collections and marketing techniques, as quickly as possible, allows for resources to be focused much more precisely on those that are left. </P>
Segmentation
The segmentation practices still commonly employed in collections today originated some 20 years ago, with the advent of behaviour risk (or payment projection) scores, and little has changed since. In contrast, there has been much innovation in the marketing space, where detailed customer intelligence is the norm.
By adopting a more marketing-led approach to segmentation and contact strategy (when, and with what message) clients can yield greater return-on-investment both with regards to achieving payment of outstanding debts and greater customer retention.
For example, in a recent collections call centre setting, a marketing approach combined with payment intent scoring, enabled one client to increase the value of recovered funds by 93% compared to a Debt Collection Agency (DCA) only approach and significantly reduced costs per £1 collected.
In practice
Through the use of analytics, including the matching of payment intent codes (likelihood to pay) against delinquent accounts where payments have been missed, key customer groups worthy of different treatment can be identified.
Each segment is assigned a series of actions which roll-on until a payment is obtained from the customer. By understanding the segment, clients will better understand the timings, contact method and message i.e. the action to take.
In this combined marketing and collections approach example, a total of 12 risk segments were proposed with each of these assigned a contact programme.
© ScorePlus, reproduced with permission
The greatest discrimination between good and bad accounts is shown in the first four groups (percentiles 1-20). These contain a proportionately larger volume of potentially bad, non-paying accounts, shown in red in the diagram. The contact strategy here was focused on earlier, tougher contact messages, more rapid write-off, and rapid transit to legal recovery.
The six mid-range percentile groups, with a growing proportion of green-coloured, potential re-payers were subject to a more campaign management approach. Here, the contact strategy was carefully monitored to understand its effectiveness in generating promises to pay and payments themselves.
Finally, the two lowest risk groups (percentiles 81-100) contained customers who, for the most part repaid without early intervention from the lender. Contact to these groups was later in the collections process and was of a ‘light touch’ to minimise the risk of damaging a relationship with a customer who has the potential to be loyal and profitable in the long-term.
The future
Anyone who has tried to collect money owed to them by family or friends will readily acknowledge that collection, whilst retaining good relations with the debtor, can be tricky. In a business context, the insensitive handling of collections can seriously damage both reputation and customer relationships. Continual marketing to customers that are in the collections process will, in turn, make the job of collections even harder.
Inherently interlinked, the coming together of marketing and collections will ensure that there is greater support of each other’s roles and lead to greater innovation to address the challenges, now and in the future. This alignment isn’t one way. With an ultimate objective of better commercial returns and a stronger bottom-line, the combined force of marketing and collections may just well be the catalyst to ensure that a 37% bad debt level is just a distant and unhappy memory.
