Surviving the stormCurrent trends andfuture strategies indebt management                                         By Martin...
ContentsIntroduction                                                              Page 1Section one    Research findings  ...
IntroductionWelcome	to	this,	our	first	survey	of	the	UK	debt	collection	and recovery industry. It could hardly arrive at a...
In	the	final	analysis	two	clear	messages	emerge	from	             For the past 13 years Transcom has been providingthis	re...
Section one – research findingsOur research has been conducted among almost 400              	 Furthermore,	the	situation	...
“Over the last 12 months in my organisation, roll rates            “Over the next 12 months in my organisation, I expect f...
Second, charge off is not only the point at which debt         “Over the next 12 months in my organisation, I expect    be...
a    	 re	making	extraordinary	efforts	to	pay	once	they	find	     “Over the next 12 months in my organisation, I expect   ...
1.3 Debt getting harder and costlier to collect                        “The following factors will have the biggest negati...
Is increased regulation adding to your debt                        data,	acquired	through	a	freedom	of	information	collect...
“Over the last 12 months in my organisation, the cost              “Over the last 12 months in my organisation, to collect...
Future strategy                                                    However, when we look at what actions companies        ...
1.5 Looking outside for offshore                                   small size is challenging, given the upfront costs of  ...
1.6 Consolidation, a relentless trend                              “I believe a consolidated approach to early,           ...
“I believe a consolidated approach to early, contingent and legal collections would deliver cost savings…”              29...
Section 2 – the way forward2.1 Investigate offshore opportunities to reduce cost                service has been delivered...
‘willingness’	to	pay	is	in	question.	And	it	is	important	to	       is more likely to be successful if your analysis of ris...
AppendicesAppendix 1: Research methodologyThe research was conducted among readers of CreditCollections & Risk magazine. T...
About TranscomTranscom is a global outsourced service provider entirelyfocused	on	customers,	the	service	they	experience	a...
Find out how working with Transcomcould transform your customer andcredit management performance.In the UKT: 0845 330 4800...
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Surviving the Storm: White Paper on Debt Collection in the UK

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Research by debt collection and recovery business, Transcom reveals a growing debt problem and the threat it poses to UK businesses.

Research conducted among 400 debt collection and recovery professionals across the UK reveals that, over the last twelve months, levels of debt amongst their customers have risen dramatically, that customers are taking longer to pay and that the amount of debt being ‘written off’ is escalating.

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Transcript of "Surviving the Storm: White Paper on Debt Collection in the UK"

  1. 1. Surviving the stormCurrent trends andfuture strategies indebt management By Martin Kochman, Global Strategy Director, TranscomA study by Transcom based onresearch conducted in partnership withCredit, Collections & Risk magazine
  2. 2. ContentsIntroduction Page 1Section one Research findings Page 3 Current trends 1.1 Dramatic escalation in early stage debt 1.2 Value of post charge off debt rising 1.3 Debt getting harder and costlier to collect Future strategy Page 11 1.4 Desires and intentions 1.5 Looking outside for offshore 1.6 Consolidation, a relentless trendSection two The way forward Page 14 2.1 Investigate offshore opportunities to reduce cost 2.2 Increase use of outsourcing 2.3 Pursue consolidation and a risk based approach 2.4 Final thoughtsAppendices Page 16This research confirms: • evels of debt, plus time and money spent to recover it, L have sky rocketed in last 12 months • imilar increases are expected in the year ahead S • elfare cuts expected to have biggest negative impact on W companies’ ability to collect • ncreased regulation is making debt harder and more I expensive to collect • ompanies see moving operations offshore and increased C use of outsourcing as best hope for cost reduction • Companies fail to take action they say will benefit them most • onsolidation is increasing in management of pre and post C charge off debt
  3. 3. IntroductionWelcome to this, our first survey of the UK debt collection and recovery industry. It could hardly arrive at a more timelymoment, revealing, as it does, the collective thoughts andopinions of our industry’s professionals at a time ofunprecedented financial challenge. It reveals an industry struggling to cope while both the nation and so many of itspeople are in chronic debt. Britain’s national debt topped £903billion (65% of GDP) in March this year, while personal debt,which overtook GDP way back in 2007, remains high, makingUK consumers the second most indebted in the world.According to research by First Direct, UK adults cite notpaying off their debts as their biggest regret of 2010. Theyare right to be concerned. Recovery from the 2008/09recession (the longest and deepest since records began)has been pedestrian, to say the least. In the first quarter of 2011 GDP has grown by a miserly 0.5%. As theGovernment’s austerity measures, tax increases and welfare cuts take hold, the pressure on UK householdscan only increase.Nor are consumers the only ones in trouble. Companyinsolvencies, which reached a peak in 2009, but havefallen slightly since, are rising again in 2011: up 3.7% inthe first quarter of 2011 according to the Office of National Statistics.All of this means that, at a time when companies andinstitutions are under pressure to shore up their flaggingfinances, their customers and clients are burdening them with ever greater levels of debt. Our research verifies without question that the rate of debt, and the time and money spent to recover it, are sky rocketing.And, while debt soars, increased regulation is making itharder and more expensive to collect. Companies are striving to keep pace with the additional management andtechnology infrastructure needed to support the increasinglyrigorous processes required to ensure compliance. While it is entirely appropriate that the regulator should act toprotect debtors, the cost of maintaining compliance isclearly adding to the burden. 1
  4. 4. In the final analysis two clear messages emerge from For the past 13 years Transcom has been providingthis research: first, that the situation for collections and outsourced customer and credit management services onrecovery departments – already bad – is expected to a global basis. Every day we handle over 600,000 customerdeteriorate further over the coming year as indebtedness contacts in 33 languages for more than 350 clients fromincreases, costs soar and regulation bears down. Secondly, operations in twenty seven countries.that although companies have strong (and perhapssurprising) views on what they might do to counter the Our experience, supplemented by a body of original challenges they face, they appear reluctant to act on them. research, informs this report.The courses of action companies intend to pursue simply Martin Kochman,don’t correlate with the actions they have identified as being Global Strategy Director, Transcomthe most effective. In particular, though moving collectionsoperations to low cost offshore locations tops their wish list,comparatively few plan to do it. Their reluctance may lie in alack of confidence, concern about consumer backlash, or in the difficulty of building a robust business case for the migration of relatively small operations. This is an area, ourrespondents tell us, where they would like more help fromtheir providers. Certainly an outsourced option has thepotential to provide a more amenable cost model and toreduce business risk. It may be that the only thing holdingthem back is a perceived shortage of outsourced options.Our respondents’ willingness to at least consider newoptions is encouraging and suggests an open mindednessfrom which the industry can only benefit. If there was ever any need for evidence that radical fresh thinking is required, this research certainly provides it. Our experience, supplemented by a body of original research, informs this report.2 2
  5. 5. Section one – research findingsOur research has been conducted among almost 400 Furthermore, the situation is expected to worsen. collections and recovery specialists working in consumer ooking ahead to the next twelve months, over half Land commercial environments across the UK. It reveals (56.4%) expect those rises to continue and, again, both the current trends they are experiencing and the future almost a quarter (24.6%) expect those rises to be greater strategies they plan to adopt. than 10%. Those who do forecast decreases expect them to be modest, and a significant group (14.6%) Current trends expect no change. 1.1 Dramatic escalation in early stage debt Clearly, though the recession is technically over, the sluggish pace of economic recovery and the impact of Individuals and companies are falling into debt, or austerity measures introduced to tackle the national debt finding themselves unable to service their existing debt, will ensure that companies and consumers alike continue in increasing numbers. Though recession is technically to feel the pinch. over, the situation is not expected to improve any time soon. More than half (55.3%) of our respondents tell us “Over the next 12 months in my organisation, that, over the past year, they have seen a rise in the I expect the number of accounts overdue by number of accounts falling overdue by between one between 1 and 3 months to…” and three months. For almost a quarter (24.9%) that rise has been dramatic at more than 10%. 9.5%“Over the last 12 months in my organisation, 14.6% 1.6% the number of accounts overdue by between 1 and 3 months has...” 5.1% 15.1% 7.1% 6.6% 3.9% 18.3% 22.3% 11.0% 31.8% 22.7% Increase by Decrease by 30.4% More than 30% Between 11- 30% 10% or less No Change Increased by Decreased by More than 30% Between 11- 30% Early stage debt is not only rising, it is also taking longer to clear. Roll rates, too, are on the up, with almost two 10% or less thirds (60.1%) of respondents reporting rises in roll rates No Change for early stage debt over the past year. For almost a third (30.5%) those rises have been in excess of 10%. 3
  6. 6. “Over the last 12 months in my organisation, roll rates “Over the next 12 months in my organisation, I expect for debt between 1 and 3 months old have…” roll rates for debt between 1 and 3 months old to…” 13.4% 12.8% 15.4% 16.2% 1.2% 1.5% 1.9% 13.2% 10.2% 17.1% 13.1% 23.6% 30.8% 29.6% Increased by Decreased by Increase by Decrease by More than 30% More than 30% Between 11 - 30% Between 11 - 30% 10% or less 10% or less No Change No Change A gain, little is expected to improve in the coming year. 1.2 Value of post charge off debt rising Well over half (56.8%) expect rises to continue. Once in debt people are falling further and further The problems encountered in the early stages of the behind. This demonstrates that, in many cases, it is the debt lifecycle bear even more sinister fruit later on. debtor’s ability (rather than the will) to settle early that W ell over half (57.2%) of respondents have seen the is severely compromised. aggregate value of accounts going into a post charge off debt recovery process rise in the past twelve months. It is at charge off, of course, that the real commercial pain kicks in, and it does so in two ways. First, note that it is not necessarily the number of accounts being charged off that is growing (though that is inferred) but their actual monetary value. In the cold harsh light of day this simply means that companies are seeing their exposure to financial risk and uncertainty rise as a result of debt they cannot clear.4
  7. 7. Second, charge off is not only the point at which debt “Over the next 12 months in my organisation, I expect becomes tougher to recover, but when customer the aggregate value of accounts going into a post relationships (and their future revenue potential) are lost. charge off recovery process to…” With more debt falling into this category, the threat to long term revenue security is very real.“Over the last 12 months in my organisation, the aggregate value of accounts going into a post 15.6% 15.6% charge off recovery process has…” 2.2% 2.3% 9.6% 15.2% 19.9% 13.0% 16.8% 2.8% 8.7% 36.1% 11.4% Increase by Decrease by 30.8% More than 20% Between 11 - 20% 10% or less No Change Increased by Decreased by More than 20% Between 11 - 20% In view of these dramatic increases it is interesting to 10% or less note that half (50.3%) of our respondents have seen No Change an increase in the percentage of debt recovered within 12 months of first placement, though almost a quarter (22.1%) have seen no change. Where they are noted, A gain, we can see that, over the next 12 months, the the increases are generally modest and represent only situation is expected to worsen, with an even larger a fraction of companies’ elevated debt levels. Perhaps number of respondents (66.9%) expecting post charge the rises indicate that those who we term ‘reluctant off debt levels to increase. debtors’ – individuals who would typically be ‘good payers’ but have been forced by circumstances they can’t control into situations they can’t remedy – 5
  8. 8. a re making extraordinary efforts to pay once they find “Over the next 12 months in my organisation, I expect themselves faced, possibly for the first time, by a the percentage of debt recovered within 12 months full-blown recoveries process. Their situation is unstable of first placement to…” and unsustainable, however. Unless their true financial difficulties have been remedied, they are likely borrowing from Peter to pay Paul; an approach which may work once but doesn’t bear repetition. 22.8%“Over the last 12 months in my organisation, the 29.6% percentage of debt recovered within 12 months of first placement has…” 8.6% 8.4% 20.6% 22.1% 5.8% 17.7% 7.1% 12% 10.9% Increase by Decrease by More than 1% Between 0.5 - 1% 7.1% 0.5% or less 17.7% No Change 9.6% Increased by Decreased by More than 1% Between 0.5 - 1% 0.5% or less No Change T hese modest gains are expected to continue over the next 12 months, though a greater number (29.6%) expect stability.6
  9. 9. 1.3 Debt getting harder and costlier to collect “The following factors will have the biggest negative impact on our 1.0 1.5recover debt over the next 4.0 0.0 0.5 ability to 2.0 2.5 3.0 3.5 I t’s clear that the UK’s professionals expect the debt 12 months…” (ranked in order of priority) collection environment to get a lot worse before it gets better. There are several factors that give rise to our respondents’ pessimism and chief among them, are 3.816 Less generous welfare benefits government actions that will either drive debt up or increase the difficulty of collecting it. 3.699 Increased debt collection regulation W e asked our respondents to rank in priority order the factors they expect to have the biggest negative impact 3.26 Increased tax burden on UK population on their ability to collect debt. It may come as a surprise to many that it isn’t rising unemployment that keeps our 2.622 Increased fuel and energy prices respondents awake at night. Rather, it is the erosion ofthe financial safety net that protects the unemployed and others at the lower end of the income scale. Less 2.5 Increasing unemployment generous welfare benefits top the list of concerns. The coalition government is standing by its commitment to 2.347 Significant rise in interest rates cut the country’s welfare bill by £11.5 billion during its first four years in office and the effect is likely to be felt, not only by the unemployed and low wage earners, but by middle income families too.The TUC, for example, The pressure imposed by regulation is considerable. has recently warned that a family with two children, with 72.7% of respondents tell us that increased regulation both parents in minimum-wage jobs, could lose up is forcing their debt collection costs up. The majority £2,756 a year by April 2013 as a result of cuts to of those (53.7%) estimate they have experienced rises benefits and tax credits. of up to 15%, but for a significant group (19%) the rises have been even greater. A fter welfare cuts, the next biggest concerns are increased debt regulation and rising tax which, with the exception of VAT perhaps, tends to hit middle-earners, spreading the chronic debt burden more widely. The strength of concern about welfare and regulation is reflected in the fact that around a quarter of respondents (25.7% and 23.2% respectively) placed these issues number one on their list of concerns when asked to list the following items in priority order. 7
  10. 10. Is increased regulation adding to your debt data, acquired through a freedom of information collection costs? request, which showed that the average cost of producing these reports had risen by more than 50% 1.1% 1.7% (to £128,000) between 2008 and 2010. In the same time frame the cost of the most expensive probe quadrupled from £1.1m to £4.4m. 16.2% 27.3% “Increased regulation is adding to our debt collection costs in the following ways…” (ranked in order of priority) 1.561 Requirement for increased capital adequacy Provision 20.1% 1.357 Complaints management 1.321 Requirement for increased technology spend 33.6% 1.296 Audit of external suppliers Yes by 1.168 Internal audit requirements More than 50% Yes: 11 - 15% Yes: 26 - 50% Yes: 10% or less Yes: 16 - 25% No Based on those reporting that increased regulation is adding to their debt collection costs The biggest regulatory headache seems to come from Certainly the overall debt collection cost increases our the requirement for increased capital adequacy respondents report are significant. More than half (54%) provision (named as the number one priority by 16.7% of our respondents have seen the cost of collecting of respondents), followed by the cost of complaints early debt rise within the last twelve months. A similar management and necessary technology spend. It is, number (46.1%) expect rises to continue in the year perhaps, indicative that almost half (47.9%) of our to come. respondents work in financial services. In December last year the Financial Times caused a stir when it When it comes to post charge off debt the increases, reported that, between April and December, the FSA though lower, are still significant, with 46.1% seeing an had ordered 90 financial services companies (a record increase and an even greater number (51.3%) number) to commission and pay for ‘skilled persons’ expecting more in the coming year. reports into areas including capital adequacy, governance and complaint handling. It also reported8
  11. 11. “Over the last 12 months in my organisation, the cost “Over the last 12 months in my organisation, to collect debt aged between 1 and 3 months has…” the cost to recover post charge off debt has…” 5.2% 9.1% 6.8% 20.8% 10.8% 31.7% 1.7% 7.5% 34.1% 5.1% 34.1% 16.0% 6.3% 10.8% Increased by Decreased by Increased by Decreased by More than 30% More than 30% Between 11 - 30% Between 11 - 30% 10% or less 10% or less No Change No Change“Over the next 12 months in my organisation, “Over the next 12 months in my organisation, I expect I expect the cost to collect debt aged between the cost to recover post charge off debt to…” 1 and 3 months to…” 0.0% 3.1% 15.7% 8.9% 31.0% 35.7% 34.1% 35.6% 0.6% 6.9% 3.4% 8.5% 15.4% 1.1% Increase by Decrease by Increase by Decrease by More than 30% More than 30% Between 11 - 30% Between 11 - 30% 10% or less 10% or less No Change No Change 9
  12. 12. Future strategy However, when we look at what actions companies actually have taken, or plan to take over the next twelve 1.4 Desires and intentions months, we can see that there is a direct inverse relationship between perceived value and actual intent. W ith debt and its related costs rising inexorably, what In a nutshell, companies are pursuing actions they actions are companies taking to protect themselves expect to have limited value, while ignoring those that and fight back? It is interesting to note that there is a would deliver most. clear discrepancy between what they say would benefit them most and what they actually are doing and plan “We have already taken the following action…” to do. W hen we asked our respondents to tell us what actions 61.9% Increased technology investment they thought would do most to reduce their costs, the migration of debt collection operations to lower cost 56.1% Improved debt segmentation offshore locations topped the list by quite a measure. Over a third (39.7%) said it would be the biggest winner 43.9% Rationalised or challenged and almost two thirds (71.1%) placed it in their top debt collection panel three. Next on the list was an increased use of outsourcing followed by a rationalisation of their debt 24.5% Increased use of outsourcing collection panels. Migrated debt collection operations 10.3% to lowercost offshore locations“The following actions would do most to reduce my cost to collect…” (ranked in order of priority) “Over the next 12 months we plan to…” 3.408 Migrate debt collection operations to lower cost offshore locations 45.4% Increased technology investment 2.883 Increase use of outsourcing 41.1% Improved debt segmentation 2.321 Rationalise or challenge debt collection panel 20.9% Rationalise or challenge debt collection panel 2.194 Improve debt segmentation Increase use 19.6% 1.929 Increase technology of outsourcing investment 9.2% Migrate debt collection operations to lowercost offshore locations10
  13. 13. 1.5 Looking outside for offshore small size is challenging, given the upfront costs of migration which must be set against the longer term The apparent reluctance to move offshore – despite financial benefits. confidence in its efficacy – is even harder to explain given that an early mover minority (15.6%) have already In light of this it is enlightening that, when asked what placed work offshore and achieved real business their debt collection agencies could do to help them benefit from doing so. Over a third (37.9%) haven’t keep pace with rising debt and costs, the provision of done so yet, but are confident it would benefit them. access to offshore locations topped our respondents’ wish lists. In fact, almost a quarter (22.5%) name it as “Has your organisation placed any of its debt their number one desire and 63.7% place it among collection activity in a lower cost offshore location?” their top three. They clearly recognise that what they cannot achieve alone may well be achieved with the economies of scale an outsourcer can offer. 15.6% Yes and achieved business benefit “The following actions by my debt collection agencies would do most to help me keep pace Yes but achieved 11.5% (ranked in order of priority):” no business benefit 37.9% No but believe it could deliver business benefit 4.847 Provide access to offshore locations 35.0% No and believe it could deliver no business benefit 3.872 Provide more flexible commercial models 3.342 Increase use of analytics to support segmentation T here are many reasons that might explain respondents’ reluctance to move offshore. They may 3.122 Provide more proactive account fear a consumer or employee backlash against the UK management redundancies that would be likely to result, especially at a time of high unemployment. Or they may simply 2.929 Provide access to leading edge technologies feel that migrating and managing a far flung offshore operation is a step too far beyond their own comfort 2.694 Advise on new or alternative zones. Equally they may have found it difficult to build debt strategies a business case for migration that makes economic sense. Though many companies have adopted offshore as a model for a number of business A few short years ago, when high levels of debt were processes (including customer management and a compensated by a booming economy, it seemed host of other non-customer focused administrative unlikely that collections and recoveries departments activities), they have been most likely to do so where would consider offshore as a real option. Today, with the volumes of transactions (and, therefore, people) cost and performance under pressure as never before, are high, giving maximum economies of scale. The they are clearly prepared to ‘think the unthinkable’. But reverse can, perhaps, be said to be true in collections they appear unprepared to go it alone. The door is and recoveries. The typical inhouse collections and open for outsourcers and debt collection agencies with recoveries team has somewhere between 50 and imagination, resource and territorial reach to offer the 250 people. Building a business case to establish an UK industry what it says it most needs. offshore operation for teams of this comparatively 11
  14. 14. 1.6 Consolidation, a relentless trend “I believe a consolidated approach to early, contingent and legal collections would improve The approach taken for early collections and post ourdebt collection performance…” charge off recoveries have, typically, varied dramatically, with most organisations choosing to manage early collections (where the customer relationship is still viable) inhouse and then move cases on to debt collection agencies post-charge off, when the customer relationship is severed. However, though these approaches differ, most organisations (69.7%) tell us that they now manage early, contingent and legal 29.9% collections under a single reporting line with a consolidated approach.“In my organisation early, contingent and legal 52.1% collections are managed under a single reporting line with a consolidated approach…” 17.9% 12.8% Yes No Don’t Know 17.4% Based on those reporting that they do not take a consolidated approach at present 69.8% Yes No Don’t Know12
  15. 15. “I believe a consolidated approach to early, contingent and legal collections would deliver cost savings…” 29.9% 52.1% 17.9% Yes No Don’t KnowBased on those reporting that they do nottake a consolidated approach at present B ased on these findings one must assume that greater consolidation is a trend set to continue, as more and more companies learn to take a holistic and progressive approach to debt management, using analytics and segmentation to refine their debt collection strategies at every stage of the debt lifecycle. 13
  16. 16. Section 2 – the way forward2.1 Investigate offshore opportunities to reduce cost service has been delivered for one third of the cost. This research makes it clear that companies are willing It seems certain more will follow. The Philippines’ to consider dramatic new options to manage their business process outsourcing industry, dominated by escalating costs. They believe moving operations voice-based customer and credit management centre offshore is their best hope for cost reduction and are services, is growing at 18% per annum. looking to outsourced service providers to help them. 2.2 Increase use of outsourcing In the past eight to ten years, outsourcing telephone based customer service operations to offshore It is typically the case that early collections activity is locations has become main stream. Where it has carried out inhouse, while post charge of recoveries are worked well it has delivered dramatic cost savings. Far outsourced to debt collection agencies. It is easy to sighted individuals in collections departments are understand the psychologically that underpins this. asking whether it can do the same for them. While the customer relationship remains open and ‘recoverable’, companies have chosen to manage the T he challenge lies in finding an outsourcing partner with situation themselves. In post charge off, when the collections expertise in the right locations. It is worth customer relationship is closed, the company has less noting that while many offshore customer service concerns about passing the case on to a third party deployments have delivered good results, there are who then deals with the debtor in their own name. probably an equal measure that have earned consumer censure due to poor service and a failure to understand We urge companies to consider the use of outsourcing the nuances of UK culture and mores. in the early collections arena. This clearly calls for a different breed of outsourcer; one that you will trust to In the past, location choices have been limited; today operate in your own name and respect your brand they are rich. Choose a location with a strong service values; to understand the nuances of your customer ethic and a clear affinity with UK business practice, relationships and work as hard to rehabilitate the especially in terms of finance. Perhaps the most customer as to collect the debt. promising among these new location opportunities is The Philippines, which recently achieved the accolade Typically, the providers who work best in this of Offshoring Destination of the Year in the UK’s environment are those that also work in customer National Outsourcing Awards. management environments, and there’s good reason for this. In the old days collections teams were typically The Philippines’ telecommunications infrastructure and charged with a single overwhelming objective: to connectivity with Europe are excellent, while its labour maximise debt recovery. Today they juggle a more pool is diverse, educated and, vitally, fluent in English. complex set of objectives which include treating Seventy five percent of the population speaks fluent customers fairly and rehabilitating them wherever English (compared to only 4% in India, for example). possible. In truth, managing debt, especially in the early Plus, the close economic ties that the Philippines enjoys collections stage, is simply a logical extension of with western economies mean that its consumer and managing customers. business environment is truly ‘simpatico’ with our own. An outsourcer that combines customer and credit The trend is already well underway. In April 2010 we management capability will have the service skills and began service from Manila to support one of the UK’s orientation to take these issues onboard. They will leading telecommunications businesses. On its behalf typically have finely tuned abilities to influence customer we’re handling in and outbound collection calls with behaviour using diplomacy and personal empathy. The early stage debtors. Already Manila’s performance has same skills are required when managing debtors – matched or bettered our client’s UK operations, and the especially ‘reluctant debtors’, whose ‘ability’ rather than14
  17. 17. ‘willingness’ to pay is in question. And it is important to is more likely to be successful if your analysis of risk is note that, in today’s economy, the number of reluctant based on complete understanding and applied across debtors, individuals or organisations who have hit hard the customer lifecycle. times but will likely become good customers (and revenue sources) again, once their immediate crisis is It’s a process that begins the minute customers come over, is higher than normal. onboard. An analysis of your company’s historical customer data will reveal the commonly shared It would appear that the trend towards outsourcing characteristics of those that have defaulted on early collections is already underway. This year the payment. This, coupled with established geo- international analyst firm, Ovum, predicted a 52% demographic profiling standards, makes it possible to increase in early collections outsourcing over the next forecast an individual’s likelihood to default or encounter five years. As driving factors behind this trend they financial difficulty. An appropriate risk score can then be quote, not only a desire to reduce cost, but to fast-track applied that will govern the way that customer is the adoption of new approaches. managed. In turn, this will feed into your own segmented strategies for managing that customer W orking with an outsourcer that has customer should they become a debtor. management skills can bring an additional benefit related to the offshore question. We referred earlier to It is also the case that the dividing line between the comparative difficulty of building a solid business customer service and early collections is becoming case for the transfer of credit management operations increasingly blurred. For example, is sending a friendly (typically much smaller than customer management message to remind a customer that a payment is due operations) offshore. Outsourcers with expertise in both (before they go into default) a customer service or an fields can offer combined services, thereby creating early collections action? Whichever, it is certainly a greater economies of scale and maximising their client’s pertinent action to take with any customer who falls into overall cost benefit. This clearly demands a coordinated a higher than average risk category. Typically the earlier procurement approach between credit and customer in the debt lifecycle you intervene, the earlier you are management colleagues, but the potential benefits likely to achieve payment. are substantial. A consistent approach that matches organisational2.3 Pursue consolidation and a risk based approach response to customer risk across the whole customer and debt management lifecycle improves effectiveness Our research shows that a holistic approach to all three and reduces cost by focusing resources where they are stages of debt management – early collections, most needed and will have the greatest impact. contingent collections and legal recovery – is a dominant trend. We urge debt management 2.4 Final thoughts professionals to pursue it urgently in order to garner the performance and cost benefits it offers. We also In conclusion, at a time when collections and recoveries encourage them to take this one step further, and move professionals are facing unprecedented challenge, it is towards closer working relationships with customer time to adopt radical thinking: to question time- management colleagues. honoured practices and challenge the status quo. Whether that means outsourcing within the UK’s In truth, customer and debt management operations borders or beyond them, or recognising debt share a common objective – to acquire and build a loyal management as simply one step in the management of customer base that represents a minimal credit risk. the customer lifecycle, the future will favour the brave. Managing relationships – both with customers and debtors – using a risk based approach will unquestionably support its achievement. This approach 15
  18. 18. AppendicesAppendix 1: Research methodologyThe research was conducted among readers of CreditCollections & Risk magazine. The 400 respondents coveredthe full spectrum of collections organisations within a widerange of industry sectors. 40.8% are responsible forconsumer debt, 41.1% for commercial and 18.1% for both.The research was completed using an online survey toolduring April 2011.Appendix 2: About the authorMartin Kochman, Global Strategy DirectorMartin is responsible for the development of Transcom’sglobal strategy and heads up its worldwide creditmanagement division. Before joining Transcom he servedas Vice President and Head of BPO in Europe for theoffshore technology and outsourcing market leader,Cognizant. Before Cognizant, he capped a successful 20year stint with the management consultancy, Accenture,with his role as Managing Partner of the consultancy’s BPOoperation in India.Martin has a first class honours degree in business from Cambridge University.16
  19. 19. About TranscomTranscom is a global outsourced service provider entirelyfocused on customers, the service they experience and the revenue they generate. Our customer and creditmanagement services are designed to strengthen ourclients’ customer relationships and secure their revenuestreams.Our broad service portfolio supports every stage of thecustomer lifecycle, from acquisition, through service, retention, cross and upsell, then on through early andcontingent collections to legal recovery. Expert at managing both customers and debt, we make a positive contributionto our clients’ profitability by helping them win customers, grow business and secure their payments.And, while our services are designed to maximise revenue, our delivery operations are built to drive efficiency. Through our global network we can provide service in any countrywhere our clients have customers, accessing the mostappropriate skills and deploying the best communicationchannels in the most cost-effective locations.Every day we handle over 600,000 customer contacts in 33languages for more than 350 clients, including brandleaders in some of today’s most challenging andcompetitive industry sectors. The experience we gain is used to constantly refine our service portfolio, processes and delivery, allowing us to respond quickly to changing market conditions and client requirements.Find out how working with Transcom could transform yourcustomer and credit management performance.In the UKT: 0845 330 4800E: debbie.nolan@transcom.comOutside the UKContactus@transcom.comwww.transcom.com
  20. 20. Find out how working with Transcomcould transform your customer andcredit management performance.In the UKT: 0845 330 4800E: debbie.nolan@transcom.comOutside the UKContactus@transcom.comwww.transcom.com

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