The Credit industry is based on the understanding of Scorecards and credit checks are at the very heart of the industry, and the majority of organisations will ensure by means of data checking that the customer they are able to repay their borrowings. Therefore, bad debt is a natural by-product of granting credit to customers.

The same principle applies to the concept of debtor profiling the credit industry is adept at using customer data to grant credit, so taking the next step to managing bad debt through similar means is a natural one.

Profiling debtors and grouping them into clusters is an important first step. Although no two cases are the same, data analysis means that customers that display similar behaviour and attributes can be considered in a similar way. Identifying trends in debtors behaviour is a powerful tool, so similar cases can be highlighted, and action taken on a group basis depending on their profiles. This seems like a simple statement, but the key is to manage on an individual’s case, so that the most appropriate and cost effective course of action is taken at the earliest period.

Simply how can creditors and DCA’s profile their debtors in order to implement a collection strategy that is efficient and cost effective? “You can’t just go on the phone to someone and say ‘why don’t you pay up?’ You have to understand their capability and use that information to use different processes for different people.”

Clearly, in today’s advanced technological market, organisations have to have tools to put the correct procedures in place to monitor debt collection and ascertain on a ‘case by case’ basis whether the specific action being taken is cost effective.

Vital, in terms of data analysis, is detail on the source of the debt, when the last payment was made and all available payment history. Crucial to the above is a robust method of reporting between the agency and the client organisation. Debt collection in theory needs to be considered in real-time. Every day that passes means the underlying cost of bad debt increases, and so the deficit to the bottom line also increases. Clear and accurate reporting from the client organization regarding the debtors details helps to profile the collection strategy so particular trends can be identified and considered. Firstly, we need to identify what data is important in supporting collection strategies. Contact details for the customer are vital – especially identifying an active communications channel with some recent success at achieving a response. Without current contact details it is practically impossible to collect any money from the customer, and any chance of success becomes dependent on additional investment in pursuing the debt. It may then in certain cases to write off the debt before any further action or investment is made because of lack of source information.

Profiling bad debt types is dependent on identifying the profile of debtors, and matching these profiles to other considerations like propensity to eventually pay back the debt. Application data is also vital since it usually contains residential and employment information which is material to the likelihood of recovering the debt as well as the most appropriate course of action. Profiles built upon these characteristics are a valuable decision making tool.

Through improvements in collection or recovery performance not only count directly on the bottom line through money paid in, but also have a significant impact on the profiling of debtors. An educated debtor profiling procedure developed over the course of the past few years has enabled Federal Management to provide a realistic assessment of receivables in a very short space of time. If bad debt is managed in an efficient and intelligent manner, the decision to escalate debt collection to the next level can be made.

This also enables us to allocate specialist skills with each type of case and this serves only to improve ways to recover funds from debtors, improving net income and overall business performance. However, due to prior improper handling, some overdue accounts are too risky to be con¬sidered for collection due the lack of correct profiling.

“In today’s climate, it is essential that creditors have access to the most comprehensive DCA’s who ongoing commitment to profiling is based on the best quality data to help them tackle rising consumer debt and its associated problems.”

Yet this is not always the best path to follow if the cost of collecting the debt outweighs the amount recovered. It is here that the advances made over the last few years in technology and understanding of data and analysis can provide the answer, in supporting the most profitable collection strategy on a case by case basis.

DCA’s are now able to have a far greater understanding of the debt profiles through data systems and can even tailor their own specific recovery process based upon the relevant indicators.