Managing a debt can be a headache. You have to call people who don’t want to be called, contact information is often not up-to-date, and there can be frequent breakdowns in communication between collectors and debtors.
However, by tracking the right debt collection KPIs, you can gain a better understanding of your operations and begin maximizing performance.
Debt collection campaigns can differ based on the industry or sector – but there are a few essential debt collection KPIs that are useful in any collections project.
1. Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) is a metric 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 annually.
A consistently high DSO can lead to long-term cash flow problems. Although debt will be paid, the question is, when? It’s naturally in the interest of all collection campaigns to collect outstanding debt 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 below formula is used:
DSO = Accounts Receivables / Net Credit Sales x Number of Days
2. Right Party Contacts Rate (RPC)
Right Party Connects (RPC) is a measure that looks at how effectively companies connect with the most appropriate person. It’s a good measure for your outreach effectiveness and contact database accuracy.
A high score demonstrates 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 percentage is then divided by the total number of attempted calls.
3. Collector Effective Index (CEI)
Collector Effective Index (CEI) compares actual vs. available collections in a given period of time. The closer this debt collection KPI is to 100%, the higher the efficiency of your debt collection campaigns.
CEI might sound very similar to DSO but, in reality, they’re very different metrics. CEI focuses on the overall quality of your collections processes. This metric is usually used to represent collection 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
4. % 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. This is 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% 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 your operation’s efficiency.
5. 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.
6. 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, which can make it difficult to know where to start measuring your effectiveness. These six critical KPIs are a good basis for any debt collection operation, regardless of sector focus.
Once you have a firm awareness of your operations, you can ramp up efficiency of your campaigns by using the right debt collection software and payment tools based on your specific needs.
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