The Preventive Management System of Collections
"If you can identify the specific collector skill performance levels prior to the end results, you can change the end results before they occur," says Roger Willis, a principal with Willis Associates (San Diego, Calif.). To apply this philosophy to the collection process, Willis created a collection pyramid model, formally called the Preventive Management System.
The first two levels of the pyramid represent the basic work habits (e.g., amount of work and timing of work).
Penetration Rate. This is the number of outbound telephone calls you make to a nonpromised account over a 30-day period (one cycle). Examples:
- If you call an account once a day for 30 days, your penetration rate is 1.00.
- If you call an account once every two days, your penetration rate is 0.50.
- If you call an account three times a day (power-dial it with an a.m. pass, p.m. pass, and night pass), your penetration rate is 3.00.
"Obviously, the more you call, the more contacts you will get," notes Willis. "However, many collection executives have no idea what their penetration level is for their accounts."
Contact Rate. This is the number of right-party contacts made, divided by the number of outbound calls (penetration rate). Contact rate is driven by two things:
- Penetration rate (how frequently you call the accounts).
- Work schedule (when you call). "If you call during prime time, for example, you'll achieve twice as many contacts as you will during nonprime time," he explains.
In sum, if you increase your penetration rate and focus your resources and technology during prime time, your contact rate will increase.
The next three levels focus on specific collector skills.
Promise Rate. This is the number of promises to pay divided by the number of right-party contacts. "Promise rate is really driven by what happens during the first 30 to 40 seconds of a contact," says Willis. It is during this time period that customers decide if they are going to consider cooperating or not.
"If collectors talk like, sound like, and act like collectors, customers are not going to respond," emphasizes Willis. On the other hand, if they utilize sales skills (e.g., good communication and active listening skills), customers are more likely to respond, saying to themselves, "Gee, even though I don't have all the money right now, I'd like to pay him, because he's not like all those other collectors."
Kept Rate. This is the number of promises kept divided by the number of promises taken (made). "The kept rate is driven by the last thing that takes place during a contact," says Willis. So conversation should revolve around selling the benefits of what you want the customer to agree to and getting the customer to agree to the recommended solution: ("Okay, I will agree to this").
Why is this last segment of the conversation so important to a strong kept rate? "The thing that customers remember about collectors is the last thing they say, not the first," he replies. "Unfortunately, most collectors use the end of the conversation to verify basic account information. Take gun; shoot self in foot."
Average Payment Size. This is the total dollars collected divided by the number of kept promises. "This is driven by the ability to negotiate," says Willis.
The top two levels (or more, depending on the organization) are reserved for special measurements that the organization uses to incent or bonus their collectors. Examples include:
- Kept promises per hour (the number of kept promises for every hour of production).
- Dollars per hour.
Using the collection pyramid in conjunction with linkage-theory management, it is possible to significantly increase collection performance. Here's how:
"If you have, say, 100 collectors, and you find that five of them are experiencing low promise rates during the first three or four days of the month, you can coach them and develop them in the specific skills required to succeed in the 'promise rate' level," explains Willis. "You can then confirm the utilization of those skills immediately afterward."
As a result, you can begin to change various rates during each collection cycle. "If you change two or three rates on these levels during each month, you can achieve an unbelievable increase in performance," he continues.
On a national average, Willis Associates has been able to lift kept per hour rates by over 30 percent, and average payment size by over 18 percent for its clients.
The above article originally appeared in Credit & Collection Manager's Letter.