A few months back, I received a call from an agency who wanted some help evaluating one of their clients. Their concern was that they might be spending too many resources on this one client to the detriment of the rest of their business.
This scenario seems to occur quite often in our industry and the long term imbalance of resources is a leading cause for why some agencies will struggle. Unfortunately for many, the line of questioning exemplified by the agency cited above does not occur until a real problem already exists. When economic or market specific conditions are positive, the problems are less obvious. Collecting is easier, new business is more plentiful, and creditors are typically less demanding. However, once these external – or potentially internal – conditions begin to negatively shift, so too does an agency’s ability to remain both effective and profitable.
Returning back to the specific question I received, I did find that the agency was allocating excessive amounts of labor and other resources on this one client – and it was hurting them elsewhere.
In reality, managing a large client can be a tough balance. The larger the creditor, the more likely they are to have and be familiar with alternative options to your service. Agency scorecard reports are becoming more and more common and your ability to liquidate on your clients’ business is being directly stacked up against your peers in the industry. This is especially prevalent when working with large hospitals or financial institutions.
If your liquidation rates don’t meet a certain threshold – or if they begin to fall notably lower than your competition – you may automatically begin to lose business or the quality of the business you are receiving will decline. Fewer accounts means fewer opportunities which equates to a smaller top line for your organization.
But what about the bottom line?
Balancing profitability with top line performance is a great balancing act. How many letters should you send? How many people should be assigned to working this client’s business? How often should you work these accounts? At what stage of the batch cycle should you reduce resources or cease collecting altogether?
The answers are not always easy, and in fact – for many organizations – they never are. But coming up with the right answers, begins with answering the right business questions.
First, seek to identify what kind of return you are getting for the resources you are expending on this client. What is your net yield per account? What portion of your resources is being expended towards this client and what portion of your revenue do they actually represent?
Second, do some analysis and identify specific areas where you are expending resources that are not making a difference to your end results. How many letters do you have going out? Are all of them necessary? Are they all producing for you? How many months are you spending collecting on the same batch of accounts? What kind of return are you getting in the later months? If you have access to our reporting database, we have both age and letter analysis reports that you can utilize to help evaluate your existing processes.
Third, make the tough decisions. Even after you have cut out the obvious waste, you might still find yourself expending too much effort on this client. After all, does it make sense to send a letter that costs fifty cents for a twenty cent return? Maybe it does and maybe it doesn’t. It really depends on your strategy. Just make sure that if you are doing something like this that you do in fact have a specific global reason for it and that you realize it is not sustainable in the long term.
In reality, there are many agencies that are breaking their backs for that one client. While this impacts agencies of all sizes, smaller agencies in particular will often struggle with this the most. If you are getting more than half of your incoming business from one organization, it is very tempting to throw everything you can at collecting as much as possible regardless of the cost. In some cases, you might have to, but make sure you do this with an eye on those areas outlined in this article.
In the end, there is only one number that really matters and it is not total gross collections or liquidation rates. The most effective organizations are those that are ensuring they are effectively balancing their resources to improve their bottom line. Those that overextend themselves or find themselves overleveraged with one client or group of clients, are also the least flexible and least adept at being able to adjust as conditions evolve within the industry.
Regardless of where you find yourself today, I’d encourage you to look deeper at your business and ensure that the decisions you are making are those that are both sustainable and are going to propel you forward. Jim Collins, author of Good to Great, writes that “Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.” You don’t have to turn your business on its head all at once to become great. Rather, it is the accumulation of many smaller choices backed by both relevant information and sound business principles that can most effectively set you apart.