EDITOR’S NOTE: The following article was originally published by Jamie Welsh at Harvest Strategy Group and is re-published here with the company’s permission.
As we noted in an earlier blog, the era of ultra-low charge-off rates is not going to last forever. When delinquency rates begin to climb towards the back end of 2021, we don’t expect it to be gradual. With the outlook for an economic recovery to occur as early as Q4, now is the time to revisit the accounts that are likely to require a legal collection strategy.
A strategic legal program is a critical component of a comprehensive collection strategy. We are often asked why a legal program is more effective than other strategies. Without the ability to properly select and segment legal eligible accounts, it’s a question that’s not just impossible answer, but one that’s equally challenging to quantify. Below are several reasons why utilizing a predictive legal selection model is the optimal path for accounts that won’t respond to traditional voluntary collection strategies;
- Net return is calculated as the gross return minus court costs and contingency fees. Wasted court costs are incurred when a customer who cannot be served (and the suit costs are wasted) or the debtor is sued, judgment obtained but never pays.
- The customer (aka debtor, member, patient, etc.) comes to realize that they have come to the end of the road. If the right account has been selected from the outset, the customer has the ability to pay some creditors. Filing a lawsuit motivates the customer to move your debt up the priority list into the ‘must-pay’ category.
- Initiating legal proceedings locks in the client’s statute of limitation rights and hence a much longer runway in which to collect, thereby giving the customer more time to rehabilitate or locate a source of money by which to satisfy the debt.
- Lastly and perhaps most importantly is the fact that an effectively executed legal strategy nets returns that are many multiples over agency returns and debt sales and often continue to pay 10+ years after commencement.
It can be difficult to make the decision about pursuing a legal strategy on an account in today’s world. 13 years ago when Harvest began, developing a predictive, proprietary legal selection and scoring model was a priority. ProScore has evolved to mirror the current environment we find ourselves in at any given time and as a result, has become the preeminent segmentation tool in the industry. As a predictive model, it utilizes fixed and variable recovery attributes at the state, county and debtor level based on previous history, current situation and anticipated success. Baked into the model are debtor attributes derived from recovery scores at the time of placement. The automated screening process ensures a high likelihood of effective account selection.
By scoring accounts early in the process, companies can determine the best path for their accounts and make important strategy decisions now, rather than waiting until it is too late.
For more information, contact Jamie Welsh at (303) 531-0654 or jamie.welsh@harveststrategygroup.com
