As the ratio of accounts-to-collector grows, the sophistication of our efforts to service those accounts must also grow. 

 

Methods of scoring are as myriad as the collection processes employed by the firms that create them.  Depending upon the orientation of your firm, it is imperative that accounts flow consistent with your strengths.  There are dozens of factors to consider when designing your work flow including, but not limited to, account type, account balance, good address, good phone number, verified place of employment, real property ownership, venue, and jurisdiction to name but a few.  The relative importance of those factors must be evaluated by you and applied to design the most cost effective work flow. 

 

Numerous vendors (including Experian, TransUnion, LexisNexis and PredictiveMetrics) all provide proprietary scoring at a relatively modest price.  Each use different parameters and formulae.  If you choose to use such a third-party scoring model, you should study those parameters to assure that its application best fits your work flow.  For example, some scoring models are designed to predict the likelihood of payment as a result of letters and calls, while other scores are designed to predict the likelihood of payment after suit, some also predict expected value of payment.  I do not, however, recommend using these scores as a standalone methodology.  They do, however, provide a valuable tool to add to your internal formula.

 

We favor a litigation strategy and therefore apply a point-ranking system that emphasizes, in order of importance, real property ownership, verified place of employment, verified address, client requirements, client support, media availability, jurisdiction and venue.  Points are ascribed to positive data in each category.  This creates a relevant ranking for the universe of accounts being scored.  We thereafter compare our ranking to that of a proprietary scoring model that we purchase for use as a cross-check to validate our findings.  Collection processes are applied accordingly. 

 

Many of your clients may perform their own internal scoring and they may be willing to share those results, which can further be used to validate your own process.  We have, on numerous occasions, performed comparisons of our findings to our clients’ internal scoring solutions and have, at all times, compared favorably and consistently with the clients’ results. 

 

Once the relative rankings are established, we typically take the highest twenty percentile and place them directly into the litigation process.  The bottom twenty percentile are typically closed back to the client as non-suit worthy. 

 

The percentages may be adjusted depending upon current workloads.  For example, if placements or purchases are temporarily off, you may choose to adjust the percentage of closes downward.  Conversely, if placements or purchases are inordinately high, you may choose to increase the percentages moving directly into the litigation process and/or into the close bucket thereby keeping the workflow to your collection floor consistent. 

 

Collection staff is accordingly focused on that middle sixty percentile, and not the “obvious”.  The middle sixty percentile is then “sliced and diced” and distributed among our collectors via a secondary formula designed to match the score to a collector’s skill level and the type of paper flowing through the process.  For example, collectors showing an aptitude for the successful use of the litigation process will receive those accounts that historically liquidate in the suit process.  Conversely, those collectors demonstrating a strong telephone technique may receive historically less suit worthy accounts.  

 

Another important step in scoring is to create a control group to test your results on a regular basis.  By testing your results, you may avoid the self-fulfilling prophecy of suing only the highest scored accounts and then concluding that the highest scored accounts are more collectable.  To avoid this trap, create a control group periodically to validate your results.  For example, take a group of files that have passed your internal ranking system, score them with a third-party vendor, and then sue them all.  Over a period of time, calculate the liquidation rate of accounts that fall into logical score ranges.  You will likely see a point where the liquidation rate increases exponentially with higher and higher scores.  This exercise accomplishes two things: 1) It proves (or disproves) the predictive power of the score; and 2) It allows you to select the ideal minimum score for litigation.  If your sample size is large enough, you can even analyze the score’s predictive power based on other factors like client, account type, balance, venue and jurisdiction.  It is important to test the score with a control group periodically.  Changing economic conditions may affect the predictive power of the score, and your tests will reveal these changes. 

 

If a new vendor approaches you about the power of their latest model, ask for a free test and score the control group with both the new vendor and your current vendor.  In six months, you will be able to evaluate the results and pick a winner or ask for a retrospective validation which will allow you to test the models accuracy today.  A retrospective analysis goes back enough months (the models observation period) to score the accounts at time of placement to test how well the score can predict the payers and/or expected liquidations that will occur during the forward historical time period. 

 

 

Nelson & Kennard is one of the largest collection law firms in California.  Our firm handles legal matters in the following practice areas: Collections, Creditors Rights, Insurance Subrogation, Construction, Litigation, Real Estate, Corporate, Business, Bankruptcy, Commercial Landlord and Tenant.  Contact www.nelson-kennard.com.