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Collection Metrics: Benefits of using KPI Indicators

Collection Metrics: Benefits of using KPI Indicators

The collections industry is all about performance. For this reason, key performance indicators (KPIs) are incredibly useful numbers for determining organizational performance and measuring the success of individual departments on a granular level.

Debt collection metrics come in many forms, and some are more useful than others. Collections bureaus will measure various accounts receivable performance metrics differently. Raw numbers can quickly become overwhelming, so how do collections agencies distinguish between different numbers and the way they influence their bottom lines?

A Guide to Debt Collection Metrics

Collections metrics help agencies to improve performance and increase collection rates on delinquent accounts. At the Collection Bureau of America, we have a selection of collections department goals that are measurable, ambitious, and relevant to the individuals and businesses we serve. It’s this commitment to excellence that makes us one of the best in the business.

There are several major accounts receivable metrics you can track, but the main one we will be looking at is the Collection Effectiveness Index (CEI).

What is the Collection Effective Index (CEI)?

At the Collection Bureau of America, we utilize the high-level CEI metric to excel in performance debt collection. This high-level account for debt control measures exactly how much was collected over a specific period. In other words, you take the total amount in accounts receivable and compare it against the amount of money collected over that period.

It’s a flexible account receivable key performance indicator because it can be measured over several periods, such as annually, monthly, or even weekly.

Why does this matter to our clients?

It offers an immediate insight into short-term, medium-term, and long-term return rates. This is expressed as a percentage and is one of the most common performance metrics on display to the general public.

Common Collections Department Goals

Like any business, collection departments also commit to recovering outstanding debts. If debts are not collected, agencies specializing in this industry do not have a business. For this reason, there are several collection department goals shared by every performance debt collection agency.

  • Debtor Days – A favorite accounts receivable KPI for collection agencies. This has a huge influence on the cash flow of both the agency and the client. Reducing debtor days means agencies are tracking down delinquent accounts faster.
  • Number of Aged Debts – The number of outstanding invoices and the amount owed by clients. Departments often work to reduce this number to prevent resources from being stretched.
  • Calls Made – The most common form of communication with debtors is the phone call. By tracking the number of calls made, collection agencies can figure out how productive they are over a period of time.
  • Percentage of Written Off Debts – Debts that are written off by collection agencies are a measure of failure. Unsuccessful collections count against collection departments and can provide insights into where an organization can improve.
  • Percentage of Late Payers – At the Collection Bureau of America, we regularly set up payment plans with clients. We track the number of late payers to see whether our recommended payment plans are effective in recovering money on behalf of our clients.

Collection metrics are extremely flexible, and not every agency will use the same metrics to get results. However, accounts receivable performance metrics must contribute to meeting a goal. The above five goals are key performance measures and provide greater insights into how individual staff members and entire departments are performing over time.

Advantages of Using Collection Metrics/KPIs

Why are collections metrics important, and why should the average person care? By implementing debt collection metrics, organizations can take advantage of several benefits, which also produce a better experience for the end client. Some of the reasons we utilize collection KPIs at the Collection Bureau of America include:

  • Drive the future direction of our agency
  • Help us make decisions on how to improve the services we offer
  • Improve performance to ensure we recover more of your money
  • We can change them as our organization changes and evolves
  • KPIs enable the agency, each department, and each employee to focus on a specific area of improvement

Debt Collection Metrics to Utilize for Business

How does one define success in the collections industry? Figuring out an objective way to measure success, and to show our clients that we are the right collections agency for them, is never easy. That’s why we utilize specific metrics to track the health and performance of our operations. Let’s examine the main metrics we use at the Collection Bureau of America.

Days Sales Outstanding (DSO)

DSO is the number of days it takes a client to pay an invoice after a sale has been generated. This is the most common metric used to measure the average length of time it takes to collect money from debtors. It’s a metric clients look at when comparing different debt collection agencies. We utilize it to compare our organization against other agencies within the industry.

Right Party Contacts (RPC) Rate

RPC measures the ratio of all outbound calls made to the number of a debtor. The higher the number, the better because it measures how effective an agency is at tracking down debtors. Skip tracing is a technique used to improve this number.

RPC rate is so important because tracking down a delinquent account is the first part of successfully collecting any debt. While there are several KPIs that can be measured through phone calls, RPC is the most specific and best measure of the success of an organization.

Percentage of Outbound Calls Resulting in Promise to Pay (PTP)

The PTP rate is the second step in the debt collection process. Once an agency has tracked down a debtor, the next step is to get the debtors to commit to paying their outstanding amounts. PTP is a measure of the number of calls that lead to some form of a promise to pay the outstanding amount, whether in full or as part of a payment plan. If your PTP metric is lower than the industry average, it could indicate a problem with the tactics used to get a debtor to pay.

Profit Per Account (PPA)

PPA is a measure of how much profit is generated per account, on average. It’s the ultimate measure of how each debt collection effort impacts your bottom line. The higher this number, the more effective and profitable a debt collection agency is. Plus, it’s easy to calculate. Divide the organization’s gross profit over a specific period by the number of delinquent accounts managed over that period.

Caution must be taken when measuring this metric as it can be deceptive. For example, if an agency takes on a larger-than-usual number of new accounts over a certain period, it will reduce PPA. This is why we always combine PPA with the average age of the accounts managed to take into account a spike in business.

Client Return Rates

Expressed as a percentage, the return rate is what most people see cited on the websites of collection agencies. As far as collection metrics go, this is the single most important KPI. The average return rate varies depending on the area, but the total average hovers around 20%. Anything above this 20% level indicates an above-average agency and an organization clients can put their trust in.

Debt Collection Metrics: A Commitment to Excellence

At the Collection Bureau of America, we are firm believers in using essential collections metrics to ensure that we can perform better as an organization. Ultimately, collections are all about ensuring you get your money back as quickly as possible. We’re constantly updating our strategies and trying out new tactics to ensure no stone remains unturned.

For a collections agency that has your best interests at heart, contact the Collection Bureau of America now.