By: Kyle Aiman
For more than 20 years, creditors have been using scores in their lending operations. They use risk models such as the VantageScore credit score, FICO or others to predict what kind of risk to expect before making credit-granting decisions. Risk models like these do a great job of separating the “goods” from the “bads.”
Debt recovery models are built differently-their job is to predict who is likely to pay once they have already become delinquent. While recovery models have not been around as long as risk models, recent improvements in analytics are producing great results. In fact, the latest generation of recovery models can even predict who will pay the most.
Hopefully, you are not using a risk model in your debt collection operations. If you are, or if you are not using a model at all, here are five reasons to start using a recovery model:
- Increase debt recovery rates – Segmenting and prioritizing your portfolios will help increase recovery rates by allowing you to place emphasis on those accounts most likely to pay.
- Manage and reduce debt recovery costs – Develop treatment strategies of varying costs and apply appropriately. Do not waste time and money on uncollectible accounts.
- Outsource accounts to third party collection agencies – If you use outside agencies, use recovery scoring to identify accounts best suited for assignment; take the cream off the top to keep in house.
- Send accounts to legal – Identify accounts that would be better served using a legal strategy versus spending time and money using traditional treatments.
- Price accounts appropriately for sale – If you are in a position to sell accounts, recovery scoring can help you develop a pricing strategy based on expected collectibility.
What recovery scoring tools are you using to optimize your company’s debt collection efforts? Feel free to ask questions or share your thoughts below.
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