What is a Collection Strategy and Why Do I Need It

Collections strategies are a pre-defined series of actions to be taken when a collection event or trigger occurs. A typical collection strategy, simplified for the sake of illustration, might consist of the following steps:

1. When the past due balance of an account hits a certain threshold, send a “friendly” reminder requesting payment
2. If 5 days pass and there is no response or payment, send a “serious” reminder
3. If another 5 days pass and there is no response or payment, initiate telephone contact
4. If another 3 days pass without response or payment, place the account on credit hold

Especially with large numbers of smaller accounts, it’s important to have strategies in place. First, they ensure collectors will clearly know what’s expected of them and apply standard procedures to collection actions. Secondly, your late paying customers will know their past due balances are being closely tracked, and we all know that the “squeaky wheel” will get paid first.

These strategies can simply be written policies, implemented by individual collectors, but to be most effective and manageable, they should be directly driven and tracked by your AR system. Whenever a strategy step threshold is reached, the system should direct the collection activity by alerting the collector to perform the action by feeding a workqueue, or, in certain cases, performing the collection action automatically, such as auto-sending the first “friendly reminder” email collection step from the example above.

The benefits of having your AR system manage your strategies are considerable:

1. Nothing will fall through the cracks because your collectors didn’t have time to find issues. The system will flag items for action, or, if authorized, perform actions automatically and inform the collector.
2. You are assured of uniform collection procedures
3. The system can track and report account collection steps and status, and how your collectors are performing their roles

Along with this, comes a few cautions. Collection strategies are definitely not a “one size fits all” solution. Your strategies, particularly those triggering automatic actions, must be well thought out and tailored to the targeted customer set. More on this in a later post.