One of the buzzwords of the financial world today is "SCORING." This concept is certainly not new. Anyone who has gone out to make a major purchase on credit (a car, a house, or a big-screen TV) knows that his or her credit history is open and available to those who have the need to know. The major credit reporting agencies maintain a fairly detailed portfolio on most Americans, and information from these credit reports has been the preferred method of most credit decisions. Over the years, and particularly recently, the credit reporting agencies have created new and improved methods of dealing with credit scoring. The data is improved and timelier, and the methods of calculating scores are more varied. They offer more types of scores for those looking to purchase on credit, those who want to increase credit lines, and those who have missed one or more payments (and should be considered a recovery risk). Credit scoring is getting better, faster and more predictable.

In the collections environment, scoring is still relatively new. Some have used credit scoring in the past and have found limited success at a relatively high cost. Today is the day of collection scoring, which is certainly different from credit scoring.

After a number of years working in the debt recovery arena, and more recently in the field of collection scoring, I believe debt collections can be described in a very simple diagram. The following is a concise but realistic table of a scoring model that not only makes sense, but is also the basis for collection procedures of many debt recovery operations.

In this simple chart, we show the ability of the individual to pay the debt across the columns. We represent the willingness to pay the debt along the rows. This may not be indicative of every collection scenario, but a debtor will usually fall into one of the four quadrants. Generally, he or she can or can't pay their debt (have or don't have the means to pay) and either wants to resolve the debt or not. As collections professionals, it is our task to determine both - ability and willingness.

With today's modern collection scoring engines, we are better able to determine an individual's ability to pay a debt. By utilizing many of the databases available (geo-demographic, socio-economic, etc.) and the general historical collections data from the agency, we are fairly accurate in predicting who can and who can't pay their bills. It still is necessary, however, for the collection agent to make some determination, and then influence willingness to pay. Let's put this all together as we look at the table above.

Can and Will
If a person is both able and willing to pay a debt (can and will) this should be a fairly simple collection process. Excuses such as "I thought my wife paid that," "I didn't receive a statement," "we recently moved," "we just refinanced the home," etc. are common with this type of debtor. Often, a written notice or a short phone conversation will resolve the matter with payment in full.

Can't and Won't
This is the person who claims, "I wouldn't pay you even if I could" and can't pay you anyway (won't and can't). Agencies must determine at what point to make that determination and cut their losses.

Can't but Will
There are those who are willing but unable to pay their debts (can't but will). These debtors might be a young couple with too many credit cards, someone who has just lost a job, those going through a divorce, or a person facing a medical tragedy, etc. A good collector can help each of these debtors find solutions, such as a loan from a relative or a payment plan with an initially low payment. There are numerous debtors who find themselves in trouble (sometimes through very little fault of their own) who have every intention of paying their bills but are just not able to right now. This is an opportunity to work with the debtor, and not demand payment in full or have a "see you in court" attitude. Your collection strategy may need to be geared to "get what you can when you can." Threats are not the answer in this situation.

Can but Won't
The individual who has the resources to pay the debt, but has no intention of doing so (won't but can) requires a totally different collection strategy. A collector needs to be able to determine why the debtor will not pay, and then positively influence his or her decision to pay the debt. There are numerous reasons why debtors do not want to pay--a bad product or service dispute, errors from either party, a claim that it was never purchased, etc. Once this reason is determined, the collector can then better effectuate resolution. This could require something as simple as sending written validation of the debt, or getting the client and debtor back in contact with each other. This may be the situation where hard line collection techniques or litigation are applicable. Remember that this is the person who can pay their debts, and we are trying not to waste valuable collection resources.

With the reasonably priced collection scoring models available today, agencies are given a clearer picture of a person's ability to pay (and even willingness to pay if we have seen this person before in our office). By allocating the proper resources and collection strategies based on the Can/Can't - Will/Won't model, we have the opportunity to make wiser collections decisions and ultimately save valuable time and resources in the process.

If you are interested in learning how Columbia Ultimate's analytics can provide you invaluable information on how to best optimize your work effort for greater profitability, simply inquire with your Client Relations Executive at 1-800-488-4420, option 2.