3 Things To Consider Why Your Organization Needs Debt Scoring For Your Delinquent Debt

In today’s challenging and difficult economy, organizations of all sizes are facing ever-growing delinquencies in their accounts receivable and expanding debt portfolios. Whereas any organization’s internal collection processes serve an essential role in collecting on past due delinquent accounts, many companies simply don’t have the resources, time and expertise necessary to recover consistently and effectively on these unpaid accounts.

In addition, many businesses waste precious capital, time and resources, not having a well thought out strategy when it comes to collecting their unpaid, past due debts. Most companies don’t know, for example, that about 90% of successful collections occurs with about 50% of any given debt portfolio. Not knowing this, most businesses waste precious time chasing after accounts that probably aren’t going to pay at all. The issue is which 50% to focus your efforts on?

Debt scoring is more becoming an effective and cost beneficial tool for companies to better speak to the problem of collecting on their delinquent receivables.

What is debt scoring? Debt scoring is essentially a probabilities forecasting model. By employing mathematical algorithms and formulas, scoring has the ability to take your company debt portfolio, and predict, with precision, a debtor’s likelihood of paying their debts, which accounts are liable to go into default, which are likely to be written off, and which ones to outsource to a collection agency. Debt scoring uses information, such as your own company’s internal accounts receivable and collection performance data, along with other key important information. This can predict, with reasonable accuracy, a customer’s payment pattern and behavior.

Equipped with this central information, businesses can make decisions earlier and map out an effective debt collection strategy and course of action. These decisions can be made on a customer-specific basis.

Here are 3 reasons why your company should consider debt scoring for your delinquent receivables:

You can focus your in-house debt collection efforts on the accounts that are more likely to pay you. This can help cut down on staffing expenses, time and money. You can concentrate on the accounts that will pay sooner, and outsource the more “problem” accounts to a debt collection agency.

Debt scoring can help rescue accounts before they go into default. For example, banks and credit unions can better supervise the condition of their loans, checking and share draft accounts. They can then better forecast which accounts to devote more attention on, before they go into default. Again, the more problem accounts can be siphoned off to a collection agency.

With debt scoring, you can employ more personalized collection strategies, specific to the particular customer, based on the level of difficulty. This again, saves time, money and staffing requirements.

David P. Montana has written extensively and served as a business advisor in debt collection agency services for thirty years. David offers much more helpful tools and information about debt scoring.