Most businesses, financial institutions included, are always looking for ways to save money on basic operational costs. The goal is to run a lean and mean operation, right? Efficiency is the name of the game when you want to keep your shareholders—your members, in some cases—happy and, ultimately, pass on those cost savings to them in the form of lower loan interest rates and higher deposit account interest rates.
When it comes to collections, cutting costs can seem like an impossible feat when you have limited resources in staff, time, and technology. After all, there are only eight hours in the workday, and your collectors likely have a difficult time reaching delinquent borrowers during typical working hours.
Sure, you could have your collectors make calls after hours and on weekends to increase contact rates, but that would derail you from reducing operations costs as you'd be forced to pay your employees for overtime or differential shifts, and/or would have the added overhead cost of keeping your branch(es) open for longer hours.
Aside from the actual monetary costs of in-house collections (i.e. employee salaries), there is also the opportunity cost that comes from lost productivity. Are there other functions that your employees could be focusing on to increase revenue and improve customer relations in place of time-consuming back-office functions like collections?
When weighing the benefits of reducing collections costs and still meeting your goals of reducing delinquency and charge offs, perhaps you should consider outsourcing your collections efforts to a third party. You may be thinking, how does paying a third-party vendor save my institution money? We live in a world where "DIY" is a route that many people travel down to "save money," but when you consider all of the intricacies that are involved in the collections process, I think you'll find that in the long-run, outsourcing comes with a huge cost savings.
Here are three cost-saving benefits to outsourcing your collections to a third-party.
1. Leverage Scalability
Choosing to outsource collections allows you to take advantage of the scalability of an organization that is heavily invested in the business of collecting. It is their bread and butter—their expertise, so it doesn't have to be yours. They've already invested in the technology, infrastructure, and employee hiring and training needed to excel at the debt collection process. Collection agencies have the collections process down to a science, deploying dialer technology and state-of-the-art staffing models to ensure that collection agents are making the maximum number of calls during peak evening and weekend hours. In addition, third-party agencies make it a priority to stay abreast of regulation changes to help their clients remain compliant with consumer protection regulations and best practices.
Rather than investing in technology and increasing your staff and hours of operation, outsourcing your collections workload allows you to leverage the scalability of a third-party provider that has already made the kind of investments you need to reduce delinquencies and increase your collection rates. One of the greatest assets of outsourcing is it’s a variable expense, because as your delinquency declines, so does the expense. When you have a full-time employee, you don’t recognize a reduced cost when delinquency declines; you simply have an employee who you’re now trying to keep busy.
2. Save on HR-Related Expenses
Successful collection agents are highly trained and skilled at their jobs. They know how to be direct but still treat your borrowers with respect and empathy. Not everyone is cut out to be a collector. The right individuals exhibit patience and can remain calm under pressure, particularly when dealing with emotional delinquent borrowers. With all of that said, in order to ensure you have a successful staff of collectors, you will have to make an investment in both the hiring process—to ensure you've hired the right people for the job—and the training process to ensure those individuals are properly and thoroughly trained.
Choosing instead to outsource your collection efforts can save the HR-related expenses of hiring and training in-house collectors.
3. Reallocate Time
Time is a non-refundable resource, and every minute your employees spend doing tedious, back-office functions such as collections is time spent away from revenue-generating tasks. It can be difficult to quantify this time commitment, but consider this scenario:
Your collector spends an hour of his/her day making calls from a delinquent borrower list. Of that list, they are only able to make direct contact with five of the borrowers because as stated earlier, they are calling during traditional work hours. Of the five borrowers, two make payments, and the other three make promises to pay.
Meanwhile, in the same time it took your collector, an agency could have likely tripled those stats to increase your collection rate, and had time left over for cross-sell efforts. Getting back the gift of time allows you and your employees to reallocate your time and focus on more strategic, long-term goals.
Just because what you're currently doing is technically "working," doesn't mean it's working as efficiently and successfully as it could. Breaking the status quo can be initially daunting, but the benefits can be tremendous.