Optimizing Collections &
the Customer Experience
TRMA Fall 2016
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Agenda
M AR K E T O V E RV I E W, C H AL L E N G E S
& OBJECTIVES
W H AT I S B E H AV I O R A L S C O R I N G ?
W H AT I S O P T I M I Z AT I O N ?
C AS E S T U D Y R E S U LT S
QUESTIONS
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2
Market Overview
POLITICAL
ECONOMIC
SOCIAL
TECHNOLOGY
Regulations are
reaching deeper into
operations and, if not
addressed strategically,
will reduce companies’
profitability.
Thriving in current
economic environment
requires managing
collection costs and
nurturing customer
relationships.
Consumers are looking
for convenient and
personalized services
across multiple
channels, and expect to
have positive
interactions with
companies at all stages
of their lifecycles.
IT backlogs have made
it difficult to manage
and quickly make
changes to decision
strategies, hosted
options have become a
viable options for
managing collection
decisions.
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3
Managing the Collections Process
Every customer interaction matters, even the more challenging ones like collections
Objective 1: Optimize bad debt expense
• Shorten the service timeline for those customers who won’t pay
• Optimize expenses by spending strategically on emails, texts, letters, &
phone calls
• Reduce spending on customers who will pay
Payment
Programs
Customer Interaction Points
Interaction
Channels
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Buy-Flow &
Purchasing
Contact
Strategies
Risk
Management
Objective 2: Improve the customer experience in delinquency
• Don’t bother a good customer who will pay
• Provide reminders only when necessary
• Tailor scripts and tactics based on risk
• Utilize customer contact as an opportunity to educate
Marketing
Efforts
Segmentation
Billing
Usage &
Fulfillment
Customer
Service
Collections
4
What is Behavioral
Scoring?
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Collections Benefits of Behavioral Scoring
Collections benefits:
 Better collection results
 Better utilization of
collection staff
 Lower cost of operation
 Improved customer service
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6
Behavioral Score
Characteristics of Behavioral Score:
BEHAVIORAL
SCORE
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 Base score is given for account
with points added/subtracted based
on consumer behaviors
 Times payment late
 Recent delinquencies
 Number of non-sufficient funds
payments
 Payment Extensions
 Months of Service
 Number of Disconnects
7
Continuous Improvement & Learning
TRACK, MONITOR
AND CHALLENGE
IMPACT OF
DECISIONS
Monthly reports provide scorecard
assessment and impact of decisions:
 Segment performance
 Score distributions
 Cure rates
 Delinquency movement
 Delinquency ratios
 Roll rates
 Static pool analysis
 Custom cross tabulations
Champion/Challenger capabilities enable
testing of new strategies for otherwise similar
accounts:
 Test new strategies, tactics, and
timing
 Identify opportunities for cost savings
Robust reporting is crucial to track, monitor and learn
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8
Data for Decisioning
Capabilities added to scoring to create action
Risk Grade
Balance Grade
Low-$100
$101-$250
$251-$350
$351-High
A
Low Risk
Low Risk
Low Risk
Low Risk
B
Low Risk
Low Risk
Low Risk
Medium Risk
C
Low Risk
Medium Risk
Medium Risk
High Risk
D
Medium Risk
Medium Risk
High Risk
High Risk
E
Medium Risk
High Risk
High Risk
High Risk
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9
Additional Operational Benefits
 Objective risk evaluation: Behavioral scoring
provides you with a risk evaluation of each account
in your portfolio. This allows you to design
strategies that capitalize on these risk evaluations.
 Controlled experimentation: With
predicative behavior can develop strategies with
reliable outcome.
 Powerful management control: The
combination of behavioral scoring and in-depth
reporting allows you to evaluate and adjust the
results of chosen programs and enables you to
react to changes in the business environment
more easily and quickly.
 Efficient systematic processing: Behavioral
scoring allows for the automation of the decision
process and more profitable prioritization of work.
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10
What is Optimization?
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Introduction to Optimization
What is Optimization?
optimization (1857): an act, process, or methodology of making something (as a design,
system, or decision) as fully perfect, functional, or effective as possible; specif:
the mathematical procedures (as finding the maximum of a function) involved in this.
Market’s view of optimization
Organizations have a strong need for industry leading robust, analytically-driven
decisioning solutions to identify the ideal consumer level decision and treatment
for a wide range of customer interactions

Key drivers:
►
Competing business goals (profit vs. market share, revenue vs. response)
►
Operational constraints (budget, resources)
►
Policy and legislative requirements
►
Individual customer behavioral needs and preferences that drive an
organization
Maximize the value of customer relationships over time.
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The Future of Optimization
‘By 2018, optimization will no longer be a niche
discipline; it will become a best practice for
leading organizations to address a wide range of
complex business decisions.’
Gartner Market Guide for Optimization 2015
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13
Collections Activities and results
Simplified optimization example
Consider six accounts each of whom can be allocated
one of three actions
Objective:
Maximize probable return
Constraints: Each action can be used twice
Customer
Action A
Action B
Action C
1
100
60
20
2
70
90
10
Action A = 170
3
50
100
40
Action B =170
Action C =130
4
40
70
100
Total
5
40
50
100
6
50
50
30
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= 470
14
Collections Activities and results
Simplified optimization example
Consider six accounts each of whom can be allocated
one of three actions
Objective:
Maximize probable return
Constraints: Each action can be used twice
Customer
Action A
Action B
Action C
1
100
60
20
2
70
90
10
Action A = 170 
150
3
50
100
40
Action B =170 
190
Action C =130 
200
= 470 
540
4
40
70
100
Total
5
40
50
100
6
50
50
30
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15
Field scheduling and collections
Simplified optimization example
Customer Action A Action B Action C Action D Action E Action F Action G Action H Action I Action J Action K Action L Action M Action N Action O Action P Action Q Action R Act
1
100
60
20
100
50
100
100
50
100
100
50
100
100
100
50
100
100
100
2
70
90
10
70
40
70
70
40
70
70
40
70
70
70
40
70
70
70
3
50
100
40
50
40
50
50
40
50
50
40
50
50
50
40
50
50
50
4
40
70
100
100
50
100
100
50
100
100
50
100
100
100
50
100
100
100
5
100
50
100
70
40
70
70
40
70
70
40
70
70
70
40
70
70
70
6
70
40
70
50
40
50
50
40
50
50
40
50
50
50
40
50
50
50
7
50
40
50
100
50
100
50
100
50
100
100
100
100
50
100
50
100
100
8
100
50
100
70
40
70
50
70
40
70
70
70
70
50
70
40
70
70
9
70
40
70
50
40
50
40
50
40
50
50
50
50
40
50
40
50
50
10
50
40
50
40
100
50
100
100
50
100
100
100
50
100
100
50
100
50
11
100
50
100
50
70
40
70
70
40
70
70
70
40
70
70
40
70
40
12
70
40
70
50
50
40
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50
40
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50
50
40
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50
40
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40
13
50
40
50
40
100
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100
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100
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100
100
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100
100
100
50
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100
50
100
50
70
40
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70
40
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70
70
40
15
70
40
70
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40
16
50
40
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40
100
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100
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100
100
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100
100
50
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40
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40
50
70
40
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70
70
40
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50
100
50
100
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40
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50
40
19
40
70
40
70
100
50
100
100
100
50
100
100
100
100
100
100
50
100
20
40
50
40
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70
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70
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50
100
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100
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40
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40
50
22
40
70
40
70
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100
100
100
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100
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100
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100
100
50
100
100
23
40
50
40
50
40
70
70
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40
70
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70
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40
70
70
24
50
100
50
100
40
50
50
50
40
50
50
50
50
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50
40
50
50
25
100
50
100
100
100
50
100
100
50
100
100
100
100
100
50
100
100
100
26
70
40
70
70
70
40
70
70
40
70
70
70
70
70
40
70
70
70
27
50
40
50
50
50
40
50
50
40
50
50
50
50
50
40
50
50
50
28
100
50
100
100
100
50
100
100
100
50
100
100
100
100
50
100
100
100
29
70
40
70
70
70
40
70
70
70
40
70
70
70
70
40
70
70
70
30
50
40
50
50
50
40
50
50
50
40
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50
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50
40
50
50
50
31
100
100
50
100
100
100
50
100
100
50
100
100
100
50
100
50
100
100
32
70
70
40
70
70
70
40
70
70
40
70
70
70
50
70
40
70
70
33
50
50
40
50
50
50
40
50
50
40
50
50
50
40
50
40
50
50
34
100
100
50
100
100
100
50
100
100
100
50
100
100
100
100
50
100
100
35
70
70
40
70
70
70
40
70
70
70
40
70
70
70
70
40
70
70
36
50
50
40
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50
50
40
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40
50
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50
50
40
50
50
37
100
50
100
50
100
100
100
50
100
100
50
100
100
100
50
100
100
100
38
70
50
70
40
70
70
70
40
70
70
40
70
70
70
40
70
70
70
39
50
40
50
40
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50
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40
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50
40
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50
50
40
50
50
50
40
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100
100
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100
100
100
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100
100
100
50
100
100
100
50
100
50
41
40
70
70
40
70
70
70
40
70
70
70
40
70
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70
40
70
40
42
40
50
50
40
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50
50
40
50
50
50
40
50
50
50
40
50
40
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16
Collections Optimization
Value Proposition
 Allows collections to target customers
with the highest risk and impact in
order to:
►
►
►
Decrease annual write-off
amounts by increasing collection
rates and prioritizing accounts to be
contacted before balances grow
Reduce overall delinquent aging
and customer roll rates, enabling
easier collections of newer dollars
and alignment with financial targets
Lower collections costs by
increasing the productivity of
personnel and tactics, allowing focus
on the most likely to cure accounts
and maximizing labor and resource
investments
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Case Study
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Collections Optimization Project
Client’s Objectives & Constraints
 Primary business objectives
►
Address rising aged receivables (180 day+)
►
Reduce related charge-off
●
Maximize $$ treated
●
Reduce related costs
 Business and operational constraints
►
Limited resources
►
Date sensitive accounts
►
Desire to extract highest risk & highest impact
accounts
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Client’s Benefits
 Vastly improved health of aged receivables
►
Specifically those greater than 180 days
 Objective results for champion/challengers between vendor
and in-house collection team
 Determined optimum levels of permanent vs. seasonal
collectors
 Decreased total disconnections, writeoffs, and associated
expenses
 Decreased complaints
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Cents Written-Off per $100 of Billed Revenue
Bad Debt Reduction
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
Jan
Feb
Mar
Apr
2015
2015
2014
2013
2012
Jan
$0.89
$0.60
$0.92
$1.13
Feb
$0.71
$0.51
$0.92
$1.04
Mar
$0.84
$0.74
$0.87
$1.37
Apr
$0.83
$0.84
$0.89
$1.48
May
2014
May
$1.00
$1.12
$0.89
$1.41
Jun
$0.89
$1.23
$0.80
$0.97
Jun
Jul
2013
Jul
$0.58
$0.94
$0.86
$1.10
Aug
Sep
Oct
Nov
Dec
2012
Aug
$0.88
$0.76
$1.25
$1.36
Sep
$0.92
$0.90
$1.01
$1.12
Oct
$0.96
$1.29
$1.32
$1.40
Nov
$0.98
$1.21
$0.86
$1.08
Dec
$0.88
$1.06
$0.63
$1.16
YTD
$0.85
$0.89
$0.93
$1.21
Annual writeoffs compared to revenue continue to decline year
after year
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Account Receivable > 180 Days
Continuous Improvement
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2015
$81,110
$80,019
$77,998
$77,515
$73,597
$70,544
$70,901
$73,046
$74,809
$76,218
$76,730
$75,789
2014
$83,854
$85,430
$81,438
$77,759
$73,763
$71,873
$73,029
$78,111
$81,657
$84,283
$85,162
$82,556
2013
$86,525
$85,864
$83,181
$82,082
$76,470
$75,180
$75,842
$78,120
$81,552
$85,397
$85,340
$84,253
2012
$102,070
$101,807
$97,761
$94,265
$91,558
$88,273
$86,574
$88,104
$89,757
$89,272
$88,404
$86,880
2011
$121,359
$119,756
$116,866
$110,333
$107,372
$105,008
$106,184
$110,671
$113,162
$113,172
$110,625
$104,494
2010
$115,392
$104,686
$102,457
$102,191
$101,098
$97,708
$99,749
$107,741
$116,520
$119,964
$120,022
$122,082
Accounts receivable aged over 180 days continues to decrease year
22
after year
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Field Collection AR > 180
Measuring Specific Impacts by Area
AR >180
11
12
21
31
41
51
52
61
62
64
YE 2011
24,530,807
8,396,727
6,873,430
6,217,039
1,814,993
5,745,097
4,844,849
8,224,840
5,991,229
2,209,710
YE 2012
$21,034,069
$ 6,190,517
$ 4,745,568
$ 4,887,510
$ 1,387,274
$ 4,509,281
$ 3,324,217
$ 6,242,619
$ 4,727,139
$ 1,439,766
YE 2013
$17,792,692
$ 5,437,623
$ 3,485,642
$ 4,561,186
$ 1,206,568
$ 3,550,352
$ 2,694,555
$ 4,881,311
$ 3,553,100
$ 1,406,686
YE 2014
$16,594,436
$ 4,948,007
$ 3,394,383
$ 4,858,949
$ 1,289,804
$ 3,696,678
$ 2,017,431
$ 4,378,153
$ 3,600,513
$ 1,268,961
YE 2015
$14,333,085
$ 4,075,476
$ 2,602,984
$ 3,477,155
$ 979,001
$ 3,280,676
$ 1,233,585
$ 3,905,983
$ 3,056,437
$ 1,150,608
2014-2015
Reduction
-13.6%
-17.6%
-23.3%
-28.4%
-24.1%
-11.3%
-38.9%
-10.8%
-15.1%
-9.3%
2011-2015
Reduction
-41.6%
-51.5%
-62.1%
-44.1%
-46.1%
-42.9%
-74.5%
-52.5%
-49.0%
-47.9%
$ 74,848,721
14,905,462
32,927,534
16,581,175
$58,487,960
11,020,352
27,224,587
12,560,637
$48,569,714
9,253,397
23,230,315
9,798,007
$46,047,316
9,543,137
21,542,443
9,314,622
$38,094,989
7,059,140
18,408,561
7,570,697
-17.3%
-26.0%
-14.5%
-18.7%
-49.1%
-52.6%
-44.1%
-54.3%
10,434,550
7,682,385
6,287,996
5,647,114
5,056,591
-10.5%
-51.5%
$
$
$
$
$
$
$
$
$
$
• To relate the larger AR picture to the individual field collection
supervisors, we filter on just active accounts that are directly impacted
by field collections (residential, commercial, industrial and unknown
customers) and set targets at the district level
• By working smarter and focusing on shutting off the right accounts we
have lowered the active AR by 49% or $37M from 2011 to 2015.
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23
Optimizing the Customer Lifecycle
Collections
Prospecting
Reduce charge-offs
Improve operational
efficiencies
Increase recoveries
Penetrate new target
markets
Improve response rates
Increase application
volume
Customer
Management
Maximize customer
value
Improve retention
Increase revenue
Reduce credit risk
Reduce fraud risk
Acquisitions
Fraud Detection and Management
 Limit fraud losses
 Reduce operational costs
 Maintain a positive customer experience
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Increase approval rates
Increase activation and
“take” rates
Improve operational
efficiency
Maximize customer shareof-wallet
Reduce credit risk
Reduce fraud risk
Minimize attrition
24
Questions?
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