CM July and August 2018

MAKE YOUR CASE
AUTHOR – Heather Greig-Smith
as one for vulnerable customers of a
credit card company.
Where things have eased, says Oliver,
is in the length of placements the banks
are willing to offer and a reduction
in the recycling of accounts to other
players. They have also been more
open to providing back book and other
protections. He adds that smaller panels
may give DCAs more pricing power than
historically.
Martin Roseweir says most thirdparty
clients still pay on cash collections.
“There’s a lot more focus on quality and
auditing but at the end of the day it’s still
a commission-based contract. They don’t
have the risk appetite for fixed fee. I don’t
think it’s the operations people who are
reluctant so much as the risk and finance
teams. The major banks have the controls
to operate a fixed fee model, but that
would take a leap of faith.”
He believes fears that collections
businesses would drop quality and effort
are misplaced. “For us, being first place
on the client’s panel is as important as the
commission.”
The end result is diversification.
“There is a lot of work where we may
never collect a penny,” says Martin. “We
have to make sure this is built into our
models. It has driven our business into
other areas. We’re doing more BPO and
are working on a fixed fee and quality
bonus for some clients. We have five or
six different models with our clients that
work for us.”
AIC has increased its utility collections
work from around 25 percent of the
business to almost half, with different
debt profiles. It also runs collections
campaigns on a fixed fee structure for
some clients. “Usually these are smaller
clients who want to know their costs or
higher balance debts,” he says. “We’ve
moved into customer service and sales
verification, away from core collections.”
It also means picking and choosing.
“We have walked away from a few
portfolios that were not for us.”
Julian Winfield says that in a perfect
world, if you adopt the right rewards
structures, you can drive positive
behaviours – “behaviours that enhance
the customer experience, re-inforce the
reputation of your business, and prevent
your industry from falling into disrepute.”
But he’d like to see agencies charging
for their services per active hour: “Of
course, there would be a clear mandate
and Service Level Agreements (SLAs) in
place. It would also be clear what was/
wasn’t included as part of the service:
calls in-bound/outbound etc might be
included, whereas letters or other forms
of communication might require an
additional charge on a menu of costs.”
In B2B collections, Hilton-Baird
Collection Services is split between
direct collections for businesses and
collecting ledgers on behalf of the banks
in insolvency cases.
On the direct collections side, the
firm charges a small administration fee
upfront and then a success fee from ten
percent -50 percent depending on the age
and quality of the debt. This differs from
the banking world, which is driven by
panels.
“We’re being asked to tender more
and more which isn’t a bad thing because
it creates competition, however there
seems to be a trend for the instructing
party to gravitate toward the cheapest cost
presented,” says Alex. “We have a question
over whether the cheapest always equals
best service and best return for the
creditors.”
His feeling is that a rush to the
bottom on price may mean some debts
aren’t worked as well as they should be.
Particularly in insolvency cases, the work
required to unpick complex situations can
be considerable.
RACE FOR THE BOTTOM
Nick Cherry, Chief Operating Officer for
Phillips & Cohen Associates, agrees. “I
think there can still be a tendency to drive
to the bottom on price – particularly for
those who are procurement-led,” he says.
“Creditors often pre-qualify companies
on compliance standards for a tender and
then invariably have a cost saving target
to achieve and favour the cheapest option.
It is important to focus on the net return,
the expertise you are buying and the sort
of experience you want your customers
to have.” He adds that there are plenty
of good examples in the industry where
creditors understand the challenges and
are willing to take more of a partnership
approach. Different methods are being
explored, with some in the industry
trialling cost per account or hybrid,
outcome-based models.
“If you run your business correctly,
I don’t necessarily see a commission
only structure as a problem but every
client has their own view on this and we
will always work with them to achieve a
commercial way forward. For example,
there are certain clients where we have
an audit score or specific conduct risk
metric directly linked to our commission.
Where we provide outstanding customer
outcomes we have the potential for
increased commission to reward the
investment we make and this ensures
that our activity remains focused on
delivering appropriate outcomes for every
customer.”
Hilton-Baird is also diversifying
to mitigate the unpredictability of
collections, doing more credit control
and credit management consultancy
for businesses. “The thing with debt
collection is that we have little visibility
where the next instruction is coming
from,” says Alex. “With credit control we
have a more predictable workflow.”
ADAPT TO THRIVE
Clearly the collections industry is doing
what it does best: adapting. “As an
industry we are very good at innovation
and adaptation,” says Nick. “I don’t think
it’s as broken as some people have said but
the challenge for creditors is to make sure
they are investing in their DCA partners
and continuing to build sustainable
relationships.” David Sheridan sounds
another note of hope. “It’s no longer a race
to the bottom. Clients seem to be taking
a reasonable approach. We speak to them
when it’s not sustainable. We’d like a
little bit more fixed fee coverage, but the
model works and is something clients are
comfortable with.”
Heather Greig-Smith is a freelance
business journalist.
The Recognised Standard / www.cicm.com / July/August 2018 / PAGE 23