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Optimise your collection contact strategy
Collection strategy management is gaining momentum in the credit industry due to current economic climate. Many financial institutions focus on collections management practices to determine the best approach to debt management. Across the credit life cycle Optimisation can deliver significant improvements in the collection space whether this is for maximising profit, minimising net impairment, maximising recoveries etc.
This webinar presented some typical optimisation projects followed by insights into a recent project delivered by Experian in South East Asia. The case study illustrated how optimisation can be used to determine the best time to contact customers by setting the optimal grace period.
Optimising the collection contact strategy
The case study presented shows how a South East Asian client used Optimisation to increase Net return to order balances by 2%. This client faced challenges in managing customer level bad debts across several different products with potentially very high outstanding arrears. As part of their collection strategy, through some business rules, the bank derived several grace periods across different secured and unsecured products. The outstanding balance was primarily used to determine when to contact the customer.
Whilst this is typically a key dimension for many collection strategies, the client was looking to increase the level of sophistication in their current strategy. Therefore the challenge is to enable good customers to self cure whilst targeting those that are less likely to cure at an earlier stage to maximise recoveries.
The business wanted to maximise net return to order balances whilst simultaneously considering all of the customer-level and portfolio-level factors to arrive at the best grace period setting of its collection. This client chose to implement a new strategy tree using Experian’s Strategy Tree Optimization technology to determine the optimal grace period to allocate for each customer. Optimisation resolved the complexity of grace period decisions this bank needs to make by simultaneously considering the goal of Net Return to order Balances, the collection resources available and ultimately the range of potential grace periods to determine the right decision for the customers. These decisions were then described in a tree delivered to the client with the following benefits:
- Increase net return to order balances by 2% with no increase in collection costs
- 3% increase in self cures through optimal allocation of grace period decisions to secured and unsecured lending.
- More advanced strategy structure, enabling easier monitoring and amendments
- Quick and easy implementation of a tree into operational systems with minimal IT impact
Following this project, Experian is enabling the business to expand opportunities to other decision areas such as DCA allocation, second collection activity.
Optimisation in a financial context
Optimisation is the mathematical decisioning technique which delivers objective, tree-based strategies based on the business goals and constraints of the organisation. It is defined as ‘The selection and delivery of all communications to maximise selected business KPI’s, whilst satisfying all operational constraints’. It can be used throughout the credit life cycle to solve various types of business challenges. Optimised strategies have been implemented successfully at many client sites given the benefits of limited IT involvement and the benefits delivered by better performing strategies.
For each business problem the optimisation requirements are presented at a high level. The optimisation goal is by far the most important pillar in the optimisation framework. For instance is the client interested in Maximising Profit or Minimising Net Impairment. Equally the optimisation requirements include both Data and Models being the key inputs into the optimisation solution. Depending upon the business problem the decisions considered being optimised varies resulting in changes in data and modelling requirements.
Experian approach to Optimisation
Experian Optimisation Solutions are fully customisable to fit every client unique business problems they may face. Each customer is unique and Optimisation helps businesses solving the complexity of setting the best action at the right time and within limited resources whether financial, human as well as operational resources. Experian works together with clients across the globe and across a number of customised approaches satisfying specific client’s needs such as: appetite for knowledge transfer, flexible approach to providing analytical support to the project etc....
Over the last 2-3 years Experian has carried out a number of Collection Projects of different nature. Collection strategy ranges from quick wins requiring a fair level of analytical efforts to more advanced strategies such as ‘Optimised Path Development’ involving a complete redesign of the collection actions at different stages throughout the collection process.