Traditional post write off recoveries Management Information (MI) focuses quite rightly on vintage based metrics which look at performance depending on the month an account was placed in a strategy and how long it has been there. That is to say that it looks at how much is collected within 3 / 6 / 12/ 18/ 24 months from placement (or similar time periods). The above graph gives a 3 and 6 month view.
This gives an easily comparable view between Debt Collection Agencies (DCAs) and strategies, since it’s straight forward to simply look at a placement month or write off month and how much has been collected. A vintage view is always useful but it is particularly important with debt at this late stage when it will take longer to recover.
It provides both a short term and long term measure. If you add customer outcome based measures, such as accounts that convert to a sustainable solution, you would also do this on a vintage basis – again this is needed to be comparable. Otherwise, you wouldn’t be able to compare a new DCA with an old DCA (who have a paying back book), or compare two strategies with different placement profiles.
However there are some important things missing from it. This depends on how you’ve set it up but , for example, on a 3/6/12/18/24 month vintage basis:
- Between 6 and 24 months on books you only get an update on the performance of a tranche of accounts every 6 months.
- After 24 months you don’t know anything about your older accounts’ performance.
This could be fixed by adding more data points; for example, 3 month intervals up to 5 years old vintage, but that is a lot of data points, too many to manage, and still won’t cover accounts that have been placed more than 5 years with a DCA.
Maybe that’s not such a good idea.
Why is this a problem all of a sudden?
This didn’t use to be so much of a problem. Historically, recoveries strategy and MI were focused on collecting as much as possible as quickly as possible. Many times when a DCA got an account paying a small amount monthly it would try to tempt the customer with a partial settlement. A bird in hand is worth two in the bush. It’s clear that vintage based MI was well suited to this idea.
Times have changed. These days we are so focused on affordability that we are, rightly, driven to creating sustainable long term solutions for the customer, not just collecting as much as possible in as short as time as possible. How much the customer pays is driven by how much they can afford, not how much they are pressured.
For many consumer credit companies and banks this has created large paying back books at DCAs (or added to existing back books). These back books have value – I like to think of them as an asset; almost, but not quite, a type of bond or securitisation. In fact if you wanted to sell them, believe you me you could get a keen price on them these days.
What’s more, because they are generally high volume, low payment, they are quite predictable. Except, that to predict something you have to have some data on it. You need back book monitoring!
This is what I would suggest is missing from recoveries MI suites. Well not all of them: I know I’ve worked to introduce it, and I expect others have. But if you don’t have decent back book monitoring for your recoveries portfolio, now is the time to introduce it.
Where to go from here?
I would recommend beginning with some simple measures:
- Black holes or out of policy accounts (that should have been returned or moved strategy)
- Breakage rates on long term paying accounts
- Analysing the accounts that come back and understanding their profile.
This will help complete the story – you already have the beginning (vintage based MI), now you can build the middle and the end.
