Managing a debt collection campaign might seem like a headache. You have to contact people who don’t want to be contacted. Debtors’ contact information is often not up-to-date and there are also common breakdowns in communication between collectors and debtors.
But, by tracking the right debt collection KPIs, you will be able to understand your operations better, enabling you to maximize your performance!
Debt collection campaigns differ, based on the industry or sector that campaigns are collecting in. However, there are a few essential debt collection KPIs that are useful in any collections project.
Days Sales Outstanding
One of the three primary debt collection KPIs is DSO, or Days Sales Outstanding. This metric is used for measuring the amount of time it takes for a company to collect its outstanding credits. In other words, the money it’s owed.
The period of time used to measure DSO can be monthly, quarterly, or annual.
A consistently high DSO can lead to long-term cash flow problems. Although debt will be paid, the question is, when? It is in the interest of all debt collection campaigns to collect outstanding credits as soon as possible.
To determine how many days it takes, on average, for a company’s accounts receivable to be realized as cash, the following formula is used:
DSO = Accounts Receivables / Net Credit Sales X Number of Days
Right Party Contacts Rate (RPC)
Right Party Connects (RPC) is an outbound call metric that examines how well companies connect with the “right” person. It is the best measure of the overall effectiveness of your outreach efforts and the integrity of your contact database.
For collections organizations, the higher this number, the better. A high score indicates a high success rate of locating debtors. The metric is defined as the percentage of calls made where the agent was able to connect to the intended person. This percent is then divided by the total number of attempted calls.
Collector Effective Index (CEI)
Collector Effective Index (CEI) compares what was collected out of what was available to collect in a given period of time. The closer that this debt collection KPI is to 100%, the higher your debt collection campaigns’ efficiency.
CEI might sound very similar to DSO, but actually, they are very different metrics. CEI differs from DSO, as it focuses on the overall quality of your collections processes. This metric is usually used to represent collections’ performance over a longer period of time.
To determine a company’s ability to turn invoices into cash, the following formula is used:
CEI = (The amount collected / The amount available for collection ) X 100
Percentage of Outbound Calls Resulting in Promise to Pay (PTP)
Promise to Pay (PTP) measures the number of outbound calls to customers resulting in a promise to pay in relation to the total number of outbound Right Party Contacts (RPCs) made by collectors over the same period of time.
In other words, while RPC measures if your calls are reaching the correct contacts. PTP measures how successful these conversations are.
You want this debt collection KPI to be as close to 100 percent as possible. A low value for this metric means that your debt collection campaign is not efficient. PTP in combination with RPC can offer the best overview of the efficiency of your operation.
Profit Per Account (PPA)
Profit Per Account (PPA) measures how much overall revenue is made by each account.
This debt collection KPI is calculated by dividing your organization’s overall profit over a set period of time and dividing that amount by the total number of outstanding accounts handled within the examined period.
There are a variety of factors that can hinder efforts to maximize profits, such as revenue, operating expenses, and the number of accounts managed. For that reason, it is a good idea to monitor how these variables are performing over time as well.
Bad Debt to Sales Ratio
Bad debt is the amount that your campaign was not able to collect and was written off as an expense. This can happen when your debtors declare bankruptcy, or when further collection efforts cost more than the debt itself.
This KPI is calculated by looking at the company’s total value of debts and total sales. If this metric increases, it means that the company offers credit to risky clients, generating bad debt.
This KPI is understood as a percentage. A high bad debt to sales means that the creditor takes on too many risky clients. Try to identify customers who regularly generate bad debt and adjust your loan terms accordingly.
There are many debt collection-related KPIs, making it hard to know where to start measuring your operations’ effectiveness. These six essential KPIs are a good basis for any debt collection operation, regardless of what sector you are doing your collections in. By understanding these metrics, you can make sure that you will have a firm overview of the efficiency of your operations! Once you do, you can start improving the efficiency of your debt collection campaigns, with the right software and tools based on your business needs.