The collection process should move along at a rapid pace. If there are numerous delays, it gives debtors the feeling that you are not really pursuing them, and they get lazy about paying you. At the same time, you may not want to spend a lot of time in the collection process. With /, you can be quite effective at collections with a minimum of effort. We give a few pointers here.
If we were really on top of things, we would only call people when they were home, we would always be in when they called, and we would never be out of important things to do. Even though we can't really do this, we may be able to get close by understanding the patterns that people follow. Here is a list of some interesting `usually's.
People are usually:
| at home 7-9pm weekdays. |
| at home 9-11am weekends. |
| at work 10-11am weekdays. |
| at work 2-4pm weekdays. |
| at home 7-9pm Sunday-Thursday. |
By keeping track of this sort of information, you can usually make your operation far more efficient. For example, if you are only going to make calls for 6 hours per week, which ones would you choose? If you said Friday after 7pm, you should be in another business.
This information is very general, and doesn't apply in many cases. For example, rural areas are very different than urban and suburban areas. Farm areas also have much different schedules. If you live in Alaska and deal with people in New York, there are time differences to take into account. In far northern and southern latitudes, on days with bad weather, at times surrounding major sporting events, and on holidays, different patterns arise. The best thing to do is collect your own information and use it to make your operation more efficient.
The Finances of Bill Collection
The most efficient collectors make about 1 call per 10 minutes where they get the debtor to agree to make regular payments. They actually make far more calls, with about 60-70% of the calls failing to reach the debtor, and about 70% of the remaining calls resulting in a promise. About 90% of all promises are kept. The high tech collection companies with a large number of collectors use automated callers to eliminate busy signals and calls that are never answered, but most people don't like being called by a machine, and this may be illegal.
At 1 promise per 10 minutes, we can get promises on 6 debtors per hour, or 48 promises per 8 hour day. If the average worker has 20 working days per month, we use a 1 month cycle time, and all promises are fulfilled, 400 new cases can be handled per month per collector. Of this, about 40 require additional calls, and as this number builds over time, we find that a collector can handle about 1600 cases.
A simple calculation tells us that if we extend credit to 1 customer per day that doesn't pay their bill right away, the whole collection agency operation would require only about 3 people hours per week, or less than one quarter time person. If our average collection bill was $200.00 and we collected all of them within 6 months, after the first 6 months of operation, we would collect an average of $6,000 per month at a cost of under $250 per month. We would also have an average of 180 active collection cases at any given moment. The total value of unpaid collectibles would average $18,000, so if we charged interest at a rate of 1.3% per month (accrued monthly, this leads to about 17% yearly interest), the interest would just cover our costs of collection.
It is vital to understand that collecting a $500 debt is no more expensive than collecting a $200 debt, but it is much more profitable! This is why we normally drop cases worth less than a certain amount. The cost of collection doesn't justify the value of the debt. A good rule of thumb is that a collector that collects less than 6 times their pay in total payments is not doing a good enough job. The best collectors operate at or above twice that rate. In one collection agency we automated, collectors run at a rate of over $20,000 per month in collections, but that is certainly not the rule.
Part time collectors are quite common, especially in small businesses and in businesses where the collector has other duties. Very often, the same people that handle the bookkeeping handle collections. If the collection process is to be most effective, the time spent on collections should be concentrated during the times you are most likely to reach the debtors. If you deal with other businesses, you would like to call when the manager or owner is around. If you are dealing with individuals and you plan to call them during the day, you should get their work number when you extend them credit to assure that you can reach them during the day if you have to collect from them.
If your part-time collectors can work at off hours and your customers are individuals, you should try to schedule the collectors to come in a little while before the debtors are home to perform the other tasks, and have them available to make calls to debtors during the prime time to reach the debtors. If collectors have a regular schedule, the debtors can also return calls at that time. The advantage of early evening and Saturday collections are quite stunning. It is not unusual to contact well over 50% of the individual debtors you try to call on weekday evenings, while it is rare to contact over 25% of them during the day on weekdays. People that work on off-hours may also save resources that are less available during the day. For example, the collectors can use desks that are occupied during the day by other employees, and this can save you money.
For collections with too few debtors to work part time every day, you might choose to perform collections only a few days a week. If you are going to do this, you might select Thursday, Monday, Tuesday, and Wednesday evening, in that order, since that is usually the most likely time to reach a debtor. It is also important to have someone available during the day to call people who are never around in the evenings. As an example, people who work second shift are almost never available at that time. You should also have someone who can answer calls during the day, or if you don't, you should consider an answering machine. If a debtor tries to get in touch with you during normal business hours and cannot get an answer to their question or leave a message, they are very likely to become adversarial toward you, and that will make collections far more difficult.