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Why early debt delinquency isn’t always a bad thing

Monday June 18, 2018

If you work in accounts receivable, you’ll know that debt collection becomes increasingly difficult as time goes on and debts start mounting. Fortunately, the reverse is also true. Debt delinquency in the early stages can be much easier to manage, often with high success rates.  
"An invoice that is more 90 days overdue has a 50% chance of being collected in full, while the recovery rate for an invoice a year overdue drops to 15%. This means that debt collection in the early stages is certainly not a bad thing, and often merely needs a focus on the right processes to ensure recovery,” says Stephen Sheather, Principal here at SCORE. 
The industry standard is that any consumer who defaults on their due payment any time between 0-90 days falls in the early-stage of the delinquency cycle. Thus, a company’s best approach, whether managing their debtors internally or outsourcing debt to collection agencies, is to collect the due amount at the lowest possible cost, while making an effort to retain the goodwill of that consumer for future business. 
Once the consumer reaches the later stage of debt delinquency, the chances of him/her paying their outstanding debt is dramatically reduced. The onus then goes onto the company to identify and eliminate high-risk customers or fraudulent activity, so risk exposure can be reduced. 
Here are three reasons to put in place a lower-effort process to recover debt from early-delinquents and protect your bottomline. 
1. Early delinquents often self-cureOften, consumers who fall into the early-debt-delinquency cycle tend to be what is known as ‘self-cure or low-risk’ consumers. This type of consumer doesn’t really need a lot of collection calls or repeated follow-up but will quickly settle the outstanding amount themselves. This is the type of person who might have a temporary setback, but promptly settles their outstanding bills, fines, and interest with minimal effort. Indeed, such debt can be to the benefit of institutions in terms of accrued interest till payment is made, whether in full or through a customized payment plan. Taking this into account, aggressive methods of debt recovery can be negative, both to customer relationships, and to your bottom line. 
2. Using analytics can predict behaviour can remove unnecessary effortLike many financial institutions, your account management teams likely have analytics to predict which customers are likely to become delinquent. Ensure that these insights are used to help you formulate a plan that involves putting your collection efforts into the customers that need it the most. This data can help you measure potentialcosts, exposure to risk and take into account the profile of your consumers as you decide on the best collection strategy for your business. At SCORE, our models utilize credit bureau data to help manage risk by predicting which accounts at various stages of delinquency will cure or have a high probability of payment. Once our models determine these accounts, the most cost-effective, targeted collection strategies are employed to decrease the number of contact attempts while dramatically improving success rates. 
3. Using robust external processes can cut your recovery costsRobust and easy-to-implement solutions that are specific to your industry focus exist. At SCORE, the support we offer spans a range industries and unique customer characteristics. Each industry has its own specific challenges and opportunities. In your collection partner, look for someone in it for the long-term, and invested in helping you take advantage of the opportunities that exist. Our models are focussed on maximizing your returns, reducing risk exposure throughout the credit life-cycle. These models are continuously updated to provide accuracy and relevance, while custom modelling is available to clients who require tailormade solutions. 
If you’d learn more about how you can map your customer debt-delinquency and maximize your returns, we’d love to set up a time to talk to you. You can call us on (416) 861-1217 to make an appointment. 
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