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For companies with subscription or annuity-based business models, low balance collections have traditionally occupied the lowest position on the accounts payable totem pole.
That is, until now.
With the credit crisis driving companies to improve cash flow and revenues, Nashville, Tenn.-based Sitel Corp., a global Business Process Outsourcing (BPO) leader, recently demonstrated an innovative new service that substantially reduces small balance collection costs while increasing low balance collections overall.
The year-long demonstration at one of Sitel’s largest retail clients focused on collecting an average outstanding customer balance of only $33.07. Upon completion, the client cut average collection costs per customer by nearly 50 percent and increased the company’s annual collections by nearly $7 million.
“In this economy cash is king, and small balance collections in the $25 to $200 range represent a huge opportunity for retailers and other annuity-based companies,” says John Farinacci, COO of Sitel’s Accounts Receivable Division. “High balance collection is a very agent rich environment. But you can’t afford agents or a third party for small balances. You need a more affordable and effective way to collect, and that’s exactly what we’ve developed.”
New approach
Sitel’s Low Balance Collection Solution targets retail, financial services, utilities, communications, and media and entertainment companies with subscription, periodic payments, and/or repetitive payment business models.
By blending its global collections expertise with advanced interactive voice response (IVR) technologies, the service replaces the traditional series of small balance mailings — letters, post cards or email — with more affordable and effective interactive voice messaging. The solution provides a consistent, non-threatening customer care experience that allows the client to retain important customers while collecting a greater number of low balance payments early in the process.
“Studies have shown that most customers are comfortable with automated interactions,” Farinacci says. “That’s important because these are ongoing customer relationships and customer retention is obviously huge to a retailer. With this solution, we keep the customer experience high by allowing them to interact in a non-pressured environment.”
After providing a friendly reminder that a balance is due, the IVR technology allows the customer to pay all or part of the balance immediately, either through a touch-tone phone, connecting to a live agent, or the company Web site.
“Letters, post cards, email or SMS are fine for a basic notification, but IVR allows you to collect during the interaction and early in the collection process,” Farinacci explains. “The call might inform the customer that a bill has been sent and they have 20 days to pay it, or it might call attention that a balance is due or beyond due, or that a product hasn’t been returned. All they have to do is push a couple of buttons to pay the balance, opt out to an agent, or promise to pay on-line.”
Lower costs, improved collections
The demonstration project, which took place in 2008-2009, involved a large consumer facing organization with literally millions of subscription-based customers. Collection notification, agent interaction and balance delinquency costs were all significantly reduced, while cash flow and revenues got a lift.
First, Sitel transitioned the company away from its traditional post card and passive interactive voice strategy to the more effective automated, hosted and managed IVR system. That alone decreased the cost and number of transactions and saved the client roughly $400,000.
“Companies traditionally send their letters or post cards at specific intervals, but candidly, that is not very effective. At 5 to 8 cents a minute, the IVR call is not only more productive, but very inexpensive in comparison to a static post card, which translates to 35 to 45 cents per item, probably more,” Farinacci explains. “For the demonstration, we sent a letter at the outset, and then followed up with a series of IVR calls. We can make five calls at an average cost of 30 cents, while five mailings cost on average roughly $1.75.”
At the same time the solution generated some $2.9 million in additional collections, increasing the client’s overall liquidation rate by 4 percent. Since the IVR calls were so much more effective in generating early payments, the solution also decreased the number delinquencies that ended up in third party collection, with approximately $1.3 million in savings. Finally, the solution decreased the client’s roll rate by 3 percent as well as its days sales outstanding (DSO) and delinquency rates, resulting in a $2.1 million improvement in bad debt.
In summary, the company reduced its annual collection costs by $1.7 million and increased cash flow by $5 million, resulting in an overall return on investment of 8.5 percent, or $6.7 million.
With the current economic environment both creating an increase in low balance delinquencies and making it difficult (if not impossible) for companies to tap the capital markets, this new approach offers subscription or annuity-based businesses a viable way to boost cash flow and revenues.
“The small balance market has always been neglected because the balance threshold does not work under traditional methods,” Farinacci concludes. “This solution helps a company collect, collect early and collect effectively.”
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- "I was sick of hearing the 'Cant pay, Wont pay' excuses from debtors. I was tired of wasting time looking for and interviewing endless debt collection agencies. All I wanted was someone motivated that suited my needs and I didn’t want to spend vast sums of money trying to get back what was rightfully mine. NZ Blacklist was born"
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The newspapers are telling us mortgagee sales are happening in record numbers, and there is no doubt some are finding the going tough. The problem is usually a familiar one – too much debt and too little savings. For many people who want to live with the jingle of coins in their pocket and no or low debt, choosing to live off the smell of an oily rag is the answer!
For those struggling under the weight of a mortgage here are some debt-busting oily rag tips : Read more
A new service very similar to NZ Blacklist www.nzblacklist.com has taken the US by storm. Report as follows from PR Web:
All too often, small businesses find themselves with bad debt and little they can do about it. Due to the complicated nature of hiring a collection agency, many companies ignore their bad debt. Most of the problem is a lack of unbiased information to aid in finding a compatible or reputable collection agency. Forced to throw caution to the wind, companies blindly place their trust in whichever collection agency has the most convincing sales pitch. In the end, a lower percentage of bad debt is collected than if a best-fit collection agency had been selected.
CollectionTree.com changes all of this. Finally, someone is here to provide businesses access to a directory of collection agencies and enables them to make smart, effective decisions. CollectionTree.com starts by sharing agency ratings based on consumer responses and historical data so each business gets the strongest collection agency for their industry and amount of bad debt placed. After uploading their accounts to the CollectionTree.com secure portal, businesses can monitor the entire process from the easy-to-understand user interface and can also quickly communicate online with their collection agencies. What’s more, with every submitted account, CollectionTree.com generates a forecast to project how much collected money to expect.
This new online tool is created with the business owner in mind. CollectionTree.com removes the confusion and overwhelming attention associated with processing bad debt; at last, companies can get bad debt collected with confidence. Read more here
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Reports from Australia show increasingly tough times for debt collection agencies. Report from Sydney Morning Herald-
Debt collector Collection House has posted a fall in annual net profit after exceptional items but says it is well positioned and looking forward with confidence.
The company’s net profit was $7.85 million for the year ended June 30, down 37 per cent on the prior financial year’s $12.39 million after impacts from the disposal of non-core businesses.
However, Collection House announced a rise in revenue from continuing businesses, a four per cent lift in underlying pre-tax profit to $10.5 million for the 12 months to 30 June 2009 and an increase in its final dividend.
It’s shares closed up 5.5 cents at 54 cents, a rise of 11.34 per cent, after the better than expected result.
Chief executive Tony Aveling said a range of initiatives implemented in response to the global financial crisis led to positive outcomes for the company and it was “looking forward with confidence”.
“When the crisis hit we recognised we needed to change tack,” Mr Aveling said.
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Reports from the U.S show debt collection has rise in business. Press Democrat report;
Debt collection is a growth industry these days, but that doesn't mean it's a terribly profitable one.
As more people fall behind on their credit card bills and car payments, collection agencies are busier than ever, churning out warning letters, calling people's homes or businesses and even dragging them into court.
But collecting on those mounting debts is tougher than ever. High unemployment and plunging home equity have left debtors with fewer resources -- and some say less inclination -- to repay debts and repair their credit ratings.
"I work four times as hard to collect the same amount of money as I did two years ago," said Robert Tavelli, head of the Santa Rosa-based collection firm NCCS Inc. "We're seeing probably a 300 percent increase in listings with no greater increase in recoveries."
No one's going to shed a tear to hear debt collectors are having a tougher time shaking down people who are behind on their bills. Some might even cheer.
But the inability to collect outstanding bills is a serious problem for businesses, and one that could threaten a sustained economic recovery. The more bad checks or delinquent accounts a business can't recover, the greater the pressure to cut employees, who in turn might fall behind on their own bills, creating a vicious cycle.
"Many of my clients are suffering," Tavelli said. "They've had to lay off people because they can't collect their receivables."
When it becomes a choice between sending customers or patients to collections and keeping employees, businesses are increasingly choosing collections, said Chris Schumacher, president of Optio Solutions, a collection firm based in Rohnert Park.
When business was good, companies focused on growth. Now that it's gotten tougher, many are watching in horror as the bad debts on their books mount, leaving them little choice but to take a tougher approach to collect past-due bills. Read full article by clicking here
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Reports out fo the US show significant layoffs in Q2, 2009.
Collection agencies and debt buyers reported layoffs at a record pace in the second quarter, according to the results from insideARM’s latest Credit & Debt Collection Industry Confidence Survey. But collection performance is improving from late last year
Accounts receivable management companies reported a record level of layoffs in the second quarter of 2009, according to the latest insideARM Credit & Debt Collection Industry Confidence Survey.
In the previous Confidence Survey, 25.7 percent of collection agencies reported layoffs in the first quarter with 33.3 percent of debt buyers cutting positions.
ARM companies did report better levels of performance in the second quarter. Although performance ratings were lower than in the first quarter, they significantly outpaced the performance reported in the fourth quarter of 2008, when the economy was seemingly in freefall and panic was the order of the day.
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Every business should be able to initiate payment themselves without the need for 3rd party collection agencies. A brief guide on how to collect debts yourself may help.
REVIEW: Review the documentation on the debts before calling the debtors. Know the history of the debt, account details, credit record, and any promises kept or broken by the debtor. Have all records or documents in front of you, ready for reference.
APPROACH: Adopt a straight, professional business-like approach. You should have Terms of Trade or have a contract, you have delivered the goods and possibly have a signed proof delivery receipt, your money is owed, and you have a right to expect payment. Don´t yell or raise your voice when speaking with the debtor. Don´t threaten them in any way; Using debt collectors or legal action is your recourse.
CONTACT: Make sure you´re talking to the correct person. Don´t let the debtor brush you off with "You´ll have to talk to the accountant." Identify the person who will pay your bill. If you can´t get through after several calls, tell the receptionist that you know your calls are being screened and that this is not acceptable. Indicate the purpose of your call and if necessary give deadlines for paying the outstanding invoice.
CONTROL: Drive the conversation. Focus only on the debt and on the repayment schedule. Don´t let the debtor sidetrack you with excuses, etc. Remember, the object of your call is to collect money, or get a commitment.
FLEXIBITY: The current economic environment is difficult. Be ready to adjust to the situation. Think about the kind of client you´re dealing with and adapt to meet the circumstances. Be prepared to accept a reasonable payment schedule. Work out what you want or what would be an acceptable payment schedule before you call. Do not go into negotiations without knowing what your willing to concede beforehand. NOTES: Keep detailed, accurate notes of every contact with the customer. Probe for further information on the customer. Notes of these contacts will help you in subsequent phone calls, and may be invaluable in litigation. Good notes will also help in further credit decisions, or in cases where skip tracing may be needed.
CONFIRMATION: Never let the debtor put you off with such terms as "We´ll talk next week," or "I´ll send what I can." Every contact should result in a commitment to payment, of a specific amount, by a specific date.
TIME: The longer an account is held, the less likely it is that it will be recovered. If payment or a payout is not arranged within 90 days, place the debt with New Zealand Blacklist.
Just as every company is specialist in their field, finding a specialist debt collection agency that fits your needs will expedite your debt being paid off. NZ Blacklist has been helping companies and individuals find the right agency to collect debt and we are confident that we can help you.
Our online systems support users to efficiently pursue delinquent accounts or bad debts anywhere in New Zealand.
List your debts for free on NZ Blacklist and take charge of your financial future
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