In the world of debt collection, key performance indicators (KPIs) are incredibly ubiquitous – and critical to measuring debt collection. KPIs are a form of metrics used to evaluate how well an organization or employee achieves specific performance goals.
The sheer number of KPIs available can be overwhelming. How do you identify which ones are most relevant to your bottom line?
Although what suits best may vary for different debt collection departments and organizations, and many debt collection professionals may have their own preferred KPIs, below are the five indicators that are the most likely indicators of the success and health of your operation.
1. Days Outstanding (DSO)
DSO is the number of days it takes a customer to pay after an invoice is created or a sale is made.
As one of the most commonly used metrics, the DSO is used to calculate how long it takes on average to collect payments from debtors. This makes it easy to compare your company's performance with others in the industry to see if and by how much your performance could improve.
Ideally, the number should be as low as possible, as a higher number reflects a lack of effectiveness on the part of your organization.
However, it is important to note that the metric generally only provides a broader view of your business's efficiency and you will need to rely on other KPIs for more specific details about certain aspects of your operations.
2. Collector Effectiveness Index (CEI)
CEI provides another global view of your company's operations and is a commonly used KPI that is sometimes confused with DSO.
However, this metric reflects a company's ability to collect its debts from customers. This is a measure of the amount collected in a certain period compared to the amount of total claims in the same period.
CEI is measured as a percentage; An organization with 100% CEI collects all of its debts. If an organization lowers its DSO, the CEI should increase accordingly.
The CEI should probably be measured by almost every debt collection agency because it can track the direction your operations are moving over longer periods of time.
3. RPC (Right Party Contact) rate.
RPC rate is the first of the more specific metrics on this list.
This KPI measures the ratio of all outbound calls to a valid phone number of the person from whom the collection is being requested (or a “real party”) compared to the number of actual parties reached. For debt collection companies, the higher this number, the better, as a high value indicates a high success rate in identifying debtors.
Of course, identifying and connecting with the right person is the first step, and if your company's RPC rate is lower than other competitors in the industry, you probably need to take a close look at what's going wrong and how you can fix this improve.
There are a variety of other KPIs related to calls, such as: B. the number of calls handled and the average call time. However, what is perhaps most important to the efficiency and success of your business is whether these calls are connected to the right person on the other end of the line – this is exactly what the RPC rate measures.
Any debt collection agency with a call center should use this KPI. The metric can be improved through the use of a sophisticated proprietary data and public records solution that leverages real-time data to obtain as much information as possible about the debtor in question.
4. Percentage of outbound calls that result in a promise to pay (PTP).
The PTP rate is just as important in measuring efficiency as your RPC rate and is the next logical step to successful debt collection.
Because the label is so descriptive, this KPI may not need much additional explanation: it measures the percentage of all calls made that end with a debtor promising to pay.
In short, while RPC rate measures the success rate of dialing the right person, this metric measures the success rate of those RPC calls. This is another percentage that you want to be as close to 100 as possible.
If your numbers are lower than your industry peers, you may need to evaluate the tactics your agents use on these calls—not to mention the associated employee training programs.
While there are a wealth of KPIs available for tracking the performance of your debt collectors, the PTP rate along with the RPC rate probably provide the two best ways to assess the level of effectiveness of your business in practice.
In order to receive a promise to pay, it is important to find the right contact person. And one of the quickest and easiest ways to find the right person is with a technology solution that provides extensive, up-to-date data from sources like utility companies and credit bureaus.
5. Profit per account (PPA)
Finally, PPA measures how much profit, on average, each account generates in collections. In short, this KPI measures how much impact each account has on your bottom line.
The metric is calculated by dividing your company's gross profit (which is calculated by subtracting total operating expenses from total revenue) over a specific period of time and dividing it by the total number of delinquent accounts managed during that period.
There are a variety of factors that can hinder efforts to maximize profits, essentially all due to one of the inputs in the PPA calculation (e.g. revenue, operating expenses, number of accounts managed, etc.).
For this reason, it's probably a good idea to also monitor the performance of these inputs over time so you can better understand how changes directly impact your bottom line.
For example, a too sudden increase in accounts under management without a corresponding increase in gross profit could result in a decrease in your PPA. Perhaps further analysis can identify an age at which accounts are very unlikely to generate any income and therefore it would be a waste of resources to attempt to collect money on them.
Caution may be necessary here, as ongoing efforts to control costs may limit the options available to your business to maximize effectiveness. So while costs do indeed need to be monitored and controlled, the return on investment that such tools provide often far exceeds the upfront cost of productivity gains.
Companies will likely want to use additional KPIs, and there is certainly no shortage of choice. Nevertheless, we believe that these five key figures provide the best information about the overall health of your company.
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