Getting the Basics Right - Part 1

Debt management is like most other things in life: if you take care of the basics, everything else will fall into place. In this 3 part series of tips, we shall look at some of the basic fundamentals of debt management and how getting the basics right can improve the overall effectiveness of a collections department.

In the first part of this series we focus on the organisational structure of the collections department in terms of centralised collections vs. branch-based collections.

A centralised collections environment exists where the collections function is managed centrally, either from one or a few locations. The organisation as a whole is responsible for the collection of its debt and collection policies are determined centrally. With branch-based collections (a de-centralised collections environment) the collection function is managed by the branch, the branch is responsible for the collection of its debt and each branch determines its own collection policies.

A centralised collections function offers a number of significant benefits over branch-based collections, which include:

• Dedicated collection resources that can focus on achieving the collection objectives of the organisation. Within a branch-based collections environment, the person that performs the collection function is often responsible for many other functions such as sales and administration.
• More effective resource management and control – as resources are centralised in one or a few locations, the management of these resources is more effective. Fewer managerial resources are likewise required to manage staff in one location.
• Easier to implement, manage and control objective collection policies. This will ensure consistency in the application of collection policies, which in turn will improve relationships with customers.
• The performance of staff can objectively be measured because work can be allocated centrally in such a way that comparisons are possible. Staff incentives are possible because performance can be measured objectively.
• Centralising the collections function in respect of all accounts will generate sufficient volumes of accounts to merit the implementation of new technology. Specialised collection systems, decision systems, scoring, collector scripts, predictive diallers, etc. can be used to optimise the effectiveness and productivity of the collections function.
• Sufficient volumes will also enable an organisation to set up specialist functional areas within the collections department to focus on tasks that require specialist skills such as first payment defaulters, policy group collections (deceased, bankrupt, insurance claims, etc) fraud management, tracing, legal, etc.

Although a de-centralised collection function has certain benefits, such as a reduced response time, closer relationship with customer, face-to-face contact, etc, the benefits of centralising the collections activity far outweigh the benefits associated with branch-based collections. As such, centralising the collection function is regarded as best practise, although certain functions (such as doorstep collections, the recovery of an asset, tracing, etc) can still be conducted from localised branches or offices.

In the next tip of the month we shall consider the different methods of delinquency measurement and the impact it can have on an organisation’s collection results.

Charl Van Rhyn is a Senior Consultant at PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 8 years of credit and risk management experience as a practising attorney, specialising in collections during all stages of the delinquency life cycle. At MBD Attorneys, a leading South African debt collection law firm, he served both in the capacity as Director Litigation and Senior Accounts Executive. Key responsibilities included the management of key business relationships within the banking, financial services, furniture retail, telecoms, utilities and health & leisure industries. He holds a B. Juris and LLB degree from the University of Potchefstroom. He is an admitted attorney of the High Court of South Africa and a member of the SA Institute of Credit Management.

About PIC Solutions
PIC Solutions provides customer management solutions to a wide range of blue-chip organisations. We are experts in the fields of credit, risk and marketing and have an established track record of success powered by solutions.

For more information on how PIC Solutions can optimise the credit life cycle of your business please visit www.picsolutions.com.