In Part I of my Taking the Pain Out of Collection Claim Processing series, I described the importance of maximizing recoveries.  In Part II I describe how you can use collection agencies as a strategic resource to help you maximize recoveries. In Part III I will describe the challenges that occur in the traditional claims process.

Placing delinquent accounts with a third party collection agent, while relatively straightforward, has traditionally been a manual process. When the process involves passing paper back and forth, a lot of time is spent documenting claims and communicating with the agency. This friction then creates inefficiency and a lack of transparency for both the creditor and the agency resulting in a series of challenges relative to the three primary activities that drive the creditor/agency relationship: Claim Placement, Debtor Information Exchange, and Performance Monitoring.

Creditor Challenges
From the creditor’s perspective, claims take time to assemble. Even when agencies provide for online placement, a considerable amount of the process is manual (paper or data entry required) and each agency’s placement portal is likely to be unique. Because placing claims takes significant time and effort, placing claims gets in the way of the daily routine, or vice versa. In the first instance, claim placement detracts from higher value collection activities, and in the latter there are delays in processing claims, which, as has already been noted, diminish their value.

Because each agency has their own client interface, there is no consolidated or unified view of all the accounts placed for collections. Checking up on the status of a particular claim is a one-off process that requires doing a manual look-up on the appropriate agency’s customer portal. It is entirely inefficient.

Lacking a portal (or true networking), agencies may provide a monthly summary of claims placed or, worse yet, periodic individual account status reports when a significant event occurs. As a result, creditors have little transparency into claim status and find it difficult to track contractual terms with their agencies. The most common way to monitor claims and agency performance is to create a spreadsheet that lists claims placed, matches recoveries against placements, and tracks agency fees (commission, attorney, other legal, etc.). Of course this is an administrative burden as data must be captured from multiple agency sources and provides only limited parameters for comparing agency performance, usually just net recoveries as a percentage of dollars placed.

Organizations today are looking for a more streamlined method to operate. While there has been much advancement within the credit industry, until now the client – agency relationship has benefited little.

Besides the physical challenge of placing collection claims and the associated data management, agency communications are handled as exceptions rather than process components. As mentioned, monitoring claim progress and results is fragmented because every agency has their own way of handling how claim status is communicated. There is seldom a network mechanism for responding to a high volume of agency requests for information. Consequently, decisions regarding next steps are delayed when additional account details are requested, especially if further research is required. The problem again is that lacking an efficient process, communicating with your agency requires more time and effort than it should. In the end, the partner relationship is strained.

Agency Challenges
The challenges agencies face are almost a mirror image of their clients. For example, claim quality is affected when claims are placed later than they should have been and increases the time lapse since the last collection activity. Incomplete files also affect claim quality. In particular, when the agency is not provided with access to the debtor’s collection history, the agency must ‘start over’ with the debtor rather than ‘pick up’ where the creditor left off. Agencies are also challenged when they receive claim data in both electronic and paper formats. Paper clogs up the process because data conversion is an unnecessary cost and burden. For these reasons, progressive agencies are now participating in more innovative communication methods, taking advantage of portals and connectivity.

Further, many agencies also work for their clients as 1st party outsourcing partners. This requires either writing a data interface between the client and agency systems, or the agency collectors must dial in to the client system. With the former, clients loose visibility of performance requiring the creation of a customized reporting function. In addition, it is difficult to get updated information from client systems after initial account data has been transmitted. When collectors dial in to the client’s system, they have access to updates, but the agency loses visibility of individual agent performance. Also, agents may require training on multiple client systems. Again, the process has historically been entirely inefficient and lacks critical transparency. Both the client and the agency are now looking toward advances in technology to improve communication.

Agencies are also challenged to maintain the manpower required to communicate manually with clients. One of the biggest issues arises when the agency, usually due to less than comprehensive claim data, is faced with a high volume of requests for additional information. Under these circumstances, creditors are often slow to respond. The problem is then compounded because collection activity is suspended pending a response, which affects recovery rates. One way around this it to provide agency collectors with access to client screens, but that affects the number of collection calls they are able to make.

To sum up, traditional methods for handling 3rd party collection claims typify a disconnected process. The crux of the problem is that the data exchange is both inconsistent and disjointed. As a result, both the agency and the creditor suffer from poor transparency, which makes it difficult for either party to make informed decisions designed to improve performance.

Stay Tuned for Part IV in which I will discuss the benefits of automating the claims process.

Do you face any of these claims process challenges I have described?  I’d like to hear from you…