How to Measure a Collection Agency’s Performance

How can you determine if a collection agency is successfully performing for you? What sort of measures should you use?

Like most businesses, the collection industry uses Key Performance Indicators (KPIs) to...

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How to Measure a Collection Agency’s Performance

Key Performance Indicators for the
​Collections Industry

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How can you determine if a collection agency is successfully performing for you? What sort of measures should you use?

Like most businesses, the collection industry uses Key Performance Indicators (KPIs) to measure its performance. Let’s explore some of the KPIs used in collections today.

Age at List (AAL)

In debt collection, time is of the essence. In fact, once an account has been past due for seven months, its collectability drops to 50%. After 12 months, it drops to only 25%.
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That’s why the Age at List is one of the most important KPIs in collections. It refers to the average number of days an account has been in past-due status. AAL provides a high-level overview of the collection cycle. As a result, it’s a good comparison indicator between collection agencies and against the industry as a whole.

Successful agencies aim for a low AAL. A high AAL suggests that the agency needs to be more effective in recovering debts. AAL tends to fluctuate, however. So you’ll want to review about a year’s worth of data in order to draw truly valuable insights.
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AAL is typically calculated every three to six months. For maximum accuracy, this KPI should be used in conjunction with other performance metrics. 

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Collection Effectiveness Index (CEI)

The Collection Effectiveness Index (CEI) is sometimes confused with AAL, but they are really very different metrics. CEI calculates the amount of monies recovered during a specific time period compared to the amount of total receivables for that same time period. Because it measures for a specific period of time, CEI is slightly more accurate than AAL.
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An agency’s CEI can be calculated for any amount of time, and the results are represented in percentages. For instance, a 100% score indicates that the collector recovered all total receivables for the given period of time. Usually, the lower the AAL, the higher the CEI.
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Right Party Contacts (RPC) Rate

While DSO and CEI provide overall measurement, the Right Party Contacts (RPC) rate is more specific. RPC measures the ratio of all outbound calls that were made to a valid phone number of the “right party” – the patient/consumer who owes the debt. A high RPC rate indicates an agency is successfully locating the correct party.

Clearly, the ability to identify, call and connect to the correct party is the very first step in successfully recovering past-due accounts from patients/consumers.
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​Promise to Pay (PTP)

After successfully contacting the right party, successful collections agents will secure a promise to pay (PTP) from the patient/consumer.  As its name implies, PTP measures the percentage of all outbound calls that result in a promise to pay.
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Of course, the goal is for this KPI to be as close to 100% as possible. 

Profit per Account (PPA)

Profit per Account (PPA) measures the average amount of profit generated by each past-due account. Basically, this KPI measures how much each overdue account impacts your organization’s bottom line.
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To calculate this metric, divide your business’ gross profit over a specific period of time; then divide that figure by the total number of delinquent accounts managed during that period. The PPA can be adversely affected by several factors: total revenue, operating expenses, and number of accounts managed.
 

For instance, if you have a sudden increase in accounts managed without a corresponding increase in gross profit, your PPA can be lowered.​​​

​Cost of Collections

This KPI is very straightforward; it refers to the cost incurred by your organization to collect on past-due accounts. It’s measured as the percentage of the amount paid to your collection agency against the total amount they’ve collected for you.

​A lower percentage means the agency is doing what you pay them to do.

At CSC, we utilize these KPIs (and more), to ensure that our performance results in optimal debt recovery for your organization. And we’ll keep you apprised of that performance through regular reporting. It all starts with a free consultation. 

FIND OUT MORE

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Sources:
Featured Image: Adobe, License Granted
CULytics
Credit Research Foundation
The Strategic CFO
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