Andrew Jackson, of Funding Circle, looks at how in-house debt collection should be done.

High operating costs, low returns and non-repeating customers are three reasons why many organisations outsource their debt recovery functions. 

A small team can manage the first calls, emails and letters, and after a few days of chasing, either a debt collection agency steps in, or the annual balance sheet is cleared up with a debt sale. 

Both solutions distance the organisation from the responsibility and risk of collecting debts and enables it to focus on growth, service and sustainability. Sounds good? Definitely. So why do some businesses prefer to insource debt collection?

Here are some of the benefits of keeping it in-house:

• Debt collection, if done properly, is an asset. The values and brand of the organisation can shine through policies and procedures that put customers first.   
• Levels of recovery can be higher, because the in-house team know their debtors better than a third party, as they were once valued customers. 
• The team can make decisions quickly and be more flexible in the results that they are prepared to accept. 
• The team is motivated to try and recover on every debt, rather than just the ones through which they are likely to make a commission. 
• There doesn’t have to be a huge operating cost – careful application of fees and charges (at levels competitively below outsourced debt collection agencies) can bring in enough revenue to make a collections team cost neutral, which beats even carrying a small team when the main function is outsourced.

Bringing collections and recoveries in-house may seems like the obvious choice, but it needs to be done right. There are four key issues that, in every case, must be considered and resolved:

1) Establish your role

A debt collection team will have a different role in different organisations. Whether credit control, special situations or part of litigation, it is essential to address what the role of the team is and what outcomes are most important for the organisation. Should the debt collection team sit under operations, with a focus on customer service and customer journey; or should it sit under risk and be most concerned with numerical targets and efficiencies; or should it be somewhere between the two, that is, accountable to both, but responsible for itself?

2) Test the foundations and start building

Before making the capital expenditure, you want to be sure that you can do it better than an outsourced agent. Running two processes in parallel will highlight differences, and will help you to design and tweak your policies and procedures.

In the early stages, everyone in a small team needs to be able to do every role. The infrastructure may be based on spreadsheets, rather than sophisticated CRMs with managed workflows and automated reporting. There will be a requirement for workarounds, which can create operational risk, especially when workarounds are built upon workarounds. That said, it is not possible to demand all technology at the outset, because you don’t know the difference between your real needs and your perceived needs following a good sales pitch.

3) What will you do differently?

An in-house team needs its own set of policies and procedures. At the start of building a team these policies evolve through trial and error, but they must always be aligned with the values of the organisation. Key policies will relate to the process of chasing debt and how cases are escalated, forbearance and write-off, costs and charges, use of third parties, and how the team is trained to ensure that it remains compliant in all respects. 

4) Create sustainability

Being accountable to stakeholders is always important, so it is necessary to build reports from the start. There should be a constant challenge as to whether insourcing or outsourcing is the correct strategy for the organisation, and data should support the strategy. 

Also, outsourced agents make a profit and they use that profit to invest in people and technology. In order for an in-house team to be sustainable, it needs to pay for itself, either through better recoveries that help the bottom line, or an additional fee that covers the team’s activities.   

There are no better challenges than to be the best. An in-house collections and recoveries team must never stop learning and innovating if they are to compete with outsourced debt collection agencies.

About the author

Andrew Jackson is head of collections and recoveries at Funding Circle.