Effective collection agency oversight requires knowing what metrics are important, and having access to them in a standardized and consistent format. Generally speaking, metrics can be labeled as either leading or lagging indicators and from that point they can be further broken down into metrics that measure effectiveness and efficiency. In order to get a complete picture of how well your vendors are doing, you need to use multiple KPI’s that measure the entirety of the activities performed by your agency network.
Lagging Indicators To Measure Past Agency Performance
Ultimately, creditors and lenders care about the return on investment that individual agencies provide them. This is most often realized by measuring the Liquidation Rate for each agency. Liquidation Rate is simply defined as gross recoveries divided by total placements. This calculation should be done for each batch individually and then collectively for all placements in your recovery timeline. Liquidation Rate is the most commonly used metric and it does give great insight into vendor performance for a prior period or periods. However, because Liquidation Rate measures past performance it is considered a lagging indicator and not the best metric to predict future results. Other important lagging indicators are: Liquidation Rate by balance, by score, by age and other demographic categories. Having this information will allow you to alter your placements to maximize recoveries.
More Key Collection Agency Measurements
Other lagging indicators that add insight into your agency network performance include their Settlement in Full and Payment in Full rates, along with the Average Settlement Percentage. These metrics are important to measure relative to the other agencies and to the work standards you’ve established for them to follow. This allows you to identify SOW compliance issues and effectiveness issues that might exist with your agencies. These metrics must be used in concert with the overall Liquidation Rate a specific agency generates in order for them to have the most value. Settlements are better than no payments, but not if they could have been PIF’s. High PIF rates are better than low, unless the agency is too rigid to accept a SIF and misses out on a payment entirely. Settlement Percent measure the average settlement rate (EX: 80% of original balance). This is important to know so that you can measure compliance with your SOW or if an agency is accepting unacceptably low SIF amounts.
Using Leading Indicators to Measure Collection Agency Performance
There are many agency metrics that Vendor Managers should review to provide insight into future results. These metrics are defined as leading indicators because they show current or recent activity that helps drive future results. Monitoring and analyzing these metrics on a regular basis can identify areas of underperformance in your agency network and allow you to manage specific agency performance so your month-end results aren’t negatively impacted. Some of the more commonly used KPI’s that fit into this category are:
- Right Party Connect (RPC) Number and Percentage: measures the amount and percentage of phone attempts being made that reach the actual consumer.
- Right Party Connect Conversion Percentage: measures the percentage of time a payment or payment arrangement is obtained when talking to the actual consumer.
- Inbound and Outbound Call Volume: call volume in and of itself doesn’t guarantee success, but without an appropriate level of call activity month-end results will almost certainly suffer and fall short of expectations. It is also important to know the timing (days and hours of the day) of the outbound call volume.
- Penetration Rate: measures the percentage of accounts that have been dialed. Generally speaking you would like to see a penetration rate trending to 100% or greater by the end of the month on newer placements.
- Payment Arrangements: PA’s scheduled for the current measurement period provide insight into what the expected total dollars to be collected will be within that same time period. It is necessary to know what the normal “keep rate” (promises to pay that are kept) is on PA’s as a certain percentage of these will break and not pay.
- Accounts per Collector: knowing the number accounts your agency has per collector will provide insight into how well they will be able to service your portfolio. If this ratio is too high then it is likely that they will not be able to successfully work your portfolio of accounts.
- Opportunity Cost: measures the “cost” of a particular agency to you if they are underperforming relative to their peer group.
- Average Handle Time: The average amount of time each collector spends speaking with a consumer. And whether or not those calls transfer into a promise to pay.
- Average Payment Size: The average size of the payments made. If each of your agencies have similar balances in their portfolios, this will provide insight into agencies that are able to negotiate higher payments, and therefore a shorter repayment time.
At a macro level, agency managers should know what their Total Net Back rate is in order to maximize recoveries. In short, Net Back is calculated as Gross Recoveries minus the amount paid in Commission. Knowing this information can actually alert you to whether your contingency rate is potentially too high or low, and allow you to experiment with different agencies and rates to determine if your Net Back can be maximized.
How To Compare Collection Agency Performance
Having all of this information is one thing. Having it provided in a consistent, standardized and timely manner is quite another thing. The data will have little value if it isn’t consistent across your entire agency network. It will also have more value if it is obtained and consolidated from an independent source. Agencies have disparate systems and they likely have unique operating systems and internal processes that could cause the most basic of metrics to be calculated differently from each other.
David Schieszer has more 25 years experience in Accounts Receivable Management solutions. Prior to joining NeuAnalytics, he was employed with AT&T Mobility, formerly Cingular Wireless, since its inception in 2000, and was with SBC Wireless for the 3 years preceding that. He held numerous Accounts Receivable Management and Marketing positions with Amoco Oil Company from 1988 – 1996, which included stints in Kansas City, Des Moines and Chicago. Schieszer has also held executive Sales and Operations positions with 3rd Party agencies SWC Group, The CMI Group and Waypoint Resource Group.
Schieszer received his undergraduate degree (BS – Economics) from Northwest Missouri State University and an MBA from Baker University. He currently resides in Grapevine, TX with his two children.