When companies are considering outsourcing their debt collection to an agency, it’s important to carefully evaluate and assess the options. There are two key metrics that these agencies can provide you with to help you do so: their profit recovery rate and their success rate. By comparing these metrics across your possible contenders, you can identify the high-performers in the industry. Since the chances of recovering a debt decrease with every passing week, it’s important to find a partner with a proven track record, who will work closely with you to achieve results.
In this article, we’ll look in-depth at each of these performance metrics, and how they factor into your decision of which debt collection agency to work with.
What Is the Profit Recovery Rate?
The profit recovery rate is a dollar-based metric. It is a measurement of a collection agency’s ability to recover money owed by overdue debt holders. It is reported as the percent of recovered money divided by the total overdue debt owed.
What Is the Success Rate?
The success rate is an account-based metric. It is represented by the percent of overdue accounts that were settled, divided by the total number of past-due accounts.
What Is a Write-Off?
It’s also important to know that accounts for which attempts at debt collection have been unsuccessful are called write-offs. From an accounting standpoint, the anticipated income from these accounts is then removed from the accounts receivable total and documented as a loss.
What Factors Affect Success Rate?
There are several factors that affect a debt collection agency’s success rate, including time, internal factors, and accepted payment methods.
• Time
Time is the biggest factor that affect the success rate of any agency. The percent chance an account will be written off increases by more than 1% each week after its past-due date. Once an account is 7 months past its due date, its collectability drops to 50%. In a year, that drops to 25%. Speed is crucial for debt collection services to succeed.
• Internal Factors
Internal factors also affect the success rate of an agency. You should ask each agency:
- • How many representatives they have
- • How many years of experience the representatives have
- • How many phone calls each representative makes on average per day
- • What the representatives’ level of authority is to make settlements
- • If the representatives work from scripts for a standardized workflow
• Accepted Payment Methods
Another key factor that can affect a debt collection agency’s success rate is the range of payment methods it accepts. Agencies that offer multiple options have a higher chance at getting debtors to pay the amounts they owe. Agencies should accept more than checks—in order to facilitate payments in a timely manner, they should also offer convenient options, such as:
- • Online payment portals
- • IVR systems
- • Credit cards
- • Debit cards
- • ACH payments
Providing these options allows for faster receipt of revenue.
Accounts Not Included in Success Rate
When determining their success rates, agencies do not include accounts from businesses that have closed, gone bankrupt, or have a valid allegation of fraud. These accounts have a near-zero recovery rate, and are therefore not included in the calculation.
What Should a Debt Collection Success Rate Be?
Success rates typically vary anywhere from 2% to 19%, however it’s worth noting that even in the most specific of industries, debt collection success rates aren’t universal, due to type of debt and placement level, let alone the customer profile. You also shouldn’t expect reported success rates to apply to future accounts for other industries. The key is that your agency can provide you with detailed data in order to give you a clear picture and set realistic expectations.
First-Rate Debt Collection Services
Credence Global Solutions provides best-in-class debt collection services for companies in the healthcare, media and entertainment, and telecommunications industries. Reach out to us today to find out more about our services.
