Your collection performance depends on the accuracy of the information provided by your credit management system. But relying on a manual system to keep balances, payment due dates, phone numbers, and notes organized and current can be inefficient, at best. And because the index-card-and-telephone-call method of collecting is labor intensive and susceptible to errors, the cost of manual collection will continue to escalate as portfolios and their delinquency ratios grow.

"The solution may lie in an automated system that emphasizes speed and flexibility while providing better collections control," says Eric J. Christeson, founder and chairman of Dynamic Interface Systems Corp. (Los Angeles), a supplier of PC-based loan origination, servicing, and collection software. "The underpinning for reduced delinquencies and higher recovery rates is accurate tracking of problems accounts, combined with productive telephone follow-up," Christeson says. "Both can benefit from automation. And the evolution of software technology now makes collection automation easier to cost- justify."

As Christeson sees it, the principal benefit of an automated collections department is enhanced cash flow. "Cutting weeks, or even days, off the average collection time," he says, "can make a significant difference in an organization's financial health. Without automation, less time is available to devote to problem loans, and more of them must be prematurely sent to outside collection agencies, who 'cherry-pick' the easiest loans to collect while commanding as much as 50% of the revenues."

How to Get Started

The challenge in automating your collections, of course, is finding the right software. It helps to know what questions to ask. Christeson suggests you start by taking these steps:

• Conduct a needs analysis. How do documents and work flow through your department? What are the most significant problems?

• Look for hidden costs. A system's ancillary costs can exceed the initial outlay. For example, what will upgrades cost? Will your computer need to be modified? What about a backup system, training expenses, etc.?

• If possible, get the software first. Don't buy software simply because it fits your current hardware. "Finding compatible hardware is easier than finding software that meets your specific needs and is compatible with existing hardware," Christeson notes.

• Choose short-term solutions for hardware and software. "Collection technology is evolving too rapidly to commit to long-term solutions," he says. "Make certain the software operates on readily-available hardware. Ask for a demonstration on a hardware platform before acquisition."

• Flexibility and control are important. You should be able to customize specific procedures. For example, you may want to send letters at 15 and 30 days past due before calling a client. When conditions dictate, you may wish to shift to a 10-day contact. Will the software allow you to do it?

• Is it expandable? Modular programs are best for integrating other software, such as credit origination or tracking programs, or operations on a LAN or WAN. "Review a software's features to determine which are useful and which are superfluous," Chisteson suggests.

• What about support? Look for a strong manufacturer commitment to support. If they don't brag about it, they probably aren't serious about it. Phone support is critical; it will be your primary source of problem-solving. Make certain it is available during the hours covering your needs.

Your Next Step

"Collection performance should not stop with the selection of an automated system," says Christeson. "While automation is vital in reducing delinquencies, it should not be viewed as a panacea. Regardless of the size of your department, performance can be enhanced by establishing objectives for yourself and your people in conjunction with the implementation of an automated system." Here's how.

Establish objectives. List the seven most important job tasks. Next to each, write an objective--a goal to accomplish relevant to the task. For example, "Establish a collection training program by 11/1/95" would be such a goal. When an objective is attained, replace it with another. "When the task changes," Christeson says, "make the change on the seven-item list. This amounts to a continuous collection management-by-objectives program."

Organize your collection area. "Collectors should telephone debtors to collect money--and do very little else," advises Christeson. "Successful collections depend on maximizing the collector's telephone time. Collectors should do almost nothing but make one phone call after another. The more calls that are made, the more debtors who will be contacted and the more dollars that will be collected."

Collector suggestions. As the front-line contact with problem loans, collectors will have collection-improvement ideas. Not all these ideas will be be workable, but, as Christeson notes, some will be and these should be considered.

"Promote the discussion of ideas," he says. "Brushing aside ideas will prompt sulking and other negative attitudes. Collectors need positive attitudes to perform their pressurized jobs. When collectors have ideas, have them come prepared to talk, to express their view of the situation, and to make a proposal or suggest a course of action."

A final word: Christeson admits that deciding which collection software system best meets your needs can be an exhausting and confusing search. "Adopt a pragmatic approach in evaluating your needs and how the capabilities of the software programs being considered can meet them. The right software, combined with a consistent support program, will create a sense of professionalism and aggressiveness in your department, a sense of urgency among delinquent clients," says Christeson, "and a significantly enhanced cash flow."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by CollectionForum.com in 2006. This article originally appeared prior to 2000.