3 Things to Consider When Listing Collections Around the New Year

Seasonality, consumer sentiment, and age at the time of listing are all factors that impact your AR flows

In our last article, we teased about how this is one of the best times of the year for listing new accounts in collection. Today, we take a closer look at differing consumer sentiment and its impact on recovery success. We also reveal how soon after delinquency, you should list with a collection agency.
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'Tis the Season
The word "seasonality" refers to a repetitive, predictable pattern for any given set of outcomes or experiences at a particular time of year. For instance, a demand-driven hike in fuel prices during the summer or rising gym membership activity in January comes to mind. We can reasonably expect these outcomes based on ample and reliable data groups from previous years.  

The accounts receivable industry is no different. The least profitable quarter is in Q4, when most consumers emphasize spending or acquiring additional debt. Conversely, the most profitable quarter occurs in Q1 as consumers aim for new goals in the coming year. Creditors can capitalize on this seasonal trend by listing new accounts in Q1, just in time to report on credit by tax time.
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During this time, some consumers shift their focus from spending to reallocation of financial leverage, tools such as a HELOC, debt refinancing, or capital investment. Others may pivot and focus, instead, on improving their debt-to-income ratio. By paying off or paying down existing debt, they become more attractive applicants to would-be lenders. As the year winds down, seasonality in the AR industry shows that the most prudent consumers are paying attention to their credit report.

But not all consumers think alike.

Consumer Sentiment
Identifying a consumer's mindset is a more critical factor in determining recovery success than seasonality in and of itself. People may set specific financial goals, but their attitude will drive them toward or away from achieving those goals. We have witnessed three predominant attitude types: engaged, motivated, and reluctant.

Engaged consumers are the type who maximize their ROI. They monitor their credit actively and pay their bills on time. These folks would receive notifications instantly if a derogatory mark were to hit their credit report and will act to resolve it immediately.  

Motivated consumers take a more passive approach. They discover a past-due account whenever a creditor or collection agency calls them or by seeing it on their credit report upon applying for a loan. They will be interested in resolution but often need a little motivation and direction.  

Both engaged and motivated consumers are reassured in knowing that, once an account is paid in full, CSC's policy is to cancel it and request the credit bureaus remove the account from their credit report. (This process takes approximately 30-45 days.)

Reluctant consumers choose not to pay their past-due bills or cannot pay them due to financial hardship. They are possibly the subject of previous or ongoing extraordinary collection activities, and resolution is either unlikely or indefinite for this group.

Creditors might be unable to affect how their customers think. Still, they can do one thing to increase the odds of recovering — list at the right maturity date.

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The Goldilocks Way
There is a Goldilocks approach to listing debt with a collection agency. Based on decades of analysis and experience, the ideal listing time for past-due accounts is between 31 and 180 days of delinquency. List any sooner, and the creditor could be paying a collection agency needlessly. But listing beyond six months could be a drain on their valuable resources.

The law of diminishing returns asserts that, once an optimal level of efficiency is attained, committing any further effort or resources to the process becomes counter-productive. In the AR industry, that time is six months.

Unless creditors have a trained and experienced team whose sole purpose is to collect and stay abreast of ever-evolving regulations, they are better off outsourcing to a third party. But often, collection responsibilities are relegated to a front-desk person, an admin, or even an office manager pulling double-duty to recover on past-due accounts.

By outsourcing collections activity, administrators could focus their time more efficiently on mission-critical tasks instead of chasing down past-due accounts while potentially opening the company to liability.  Plus, specialized job functions or processes would be illogical or impossible for creditors to outsource.

Every dollar recovered comes with a price. How do you make the most of it? Debt collection is something you can outsource. Since accounts receivable are CSC's specialty, our unit yield is far more favorable, efficient, and cost-productive than you can expect by managing your collections. But it would help if you listed it at the most opportune age of delinquency. 

In Short
There are several variables to consider when listing past-due accounts with a third party. Primarily seasonality, consumer sentiment, and age at the time of listing, the most important being the last one. But some factors deviate from industry to industry. If you are interested in learning how best to improve your company's particular AR flows, contact CSC today!

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