How subscription managers can get stakeholder buy-in for an external debt collection partner

If you understand the need for working with a debt collection partner, but have internal stakeholders to bring on the journey — this is for you.

For first time outsourcers, constructing a robust business case for collections can be a hefty task. Especially when your number one priority is your customer relationships, third-party collections require extra consideration.

Let’s look at how subscription businesses develop an effective third party collections business case that secures internal buy-in.

Step 1: Evaluate how much potential revenue you’re missing out on

Start by analysing your churn data to understand the impact of involuntary churn — that is, the amount of customers who are leaving your business without intending to.

Point out to your stakeholders:

• How many subscribers are you losing due to missed payments?
• How many of these subscribers were previously loyal customers — up until you stopped providing service because they missed a payment once?
• What’s the lifetime value of each of these churned customers?
• How do these losses affect your revenue and ultimately, the customer acquisition costs (CAC) to replace them?

Believe it or not, debt collection can actually extend your customer lifetime value — if you work with the right partner. If your customers who fall behind receive a positive collections experience, they’re far more likely to use your product later down the line, once they’re back on track.

This approach is supported by data:

• Your subscriber is 27% more likely to leave your business for good if they experience service interruptions due to failed payments
• 88% of businesses say that repeat customers contribute to 25-75% of their annual revenue

Given these numbers, it’s not a factor to overlook.

In addition, reducing churn allows more of your budget to be redirected towards customer acquisition rather than just maintaining current numbers —ultimately lowering your CAC and driving growth in your subscriber base rather than mere retention.

Step 2: Identify how to optimise the customer experience for higher retention

Now you’ve identified the cause of revenue loss, the next step is to implement a strategy that prioritises your customers’ experiences even when payments fail.

Our recommendation? Start by offering a grace period for payments to provide loyal customers with extra time to settle outstanding balances. It’s likely you have a dunning process in place, but it’s worth considering how to enhance this strategy to encourage customers to pay, without being punitive. This approach not only assists customers in resolving minor payment disruptions but also strengthens customer loyalty by showing flexibility and understanding.

Best technical dunning practices include:

• Dynamic payment routing: Looks for the fastest and most efficient way to process payments, reducing the likelihood of them failing. It requires heavy lifting from your Product team to set up the correct infrastructure.
  
• Payments “cycling”: The process of retrying payments using other payment methods already on file. If you have this in your terms and conditions, optimise your retry acceptance rate and cycle another method of payment? Heads up, this can also be a large undertaking for Product teams.
  
• Payments retry strategy: Financial institutions differ in every market, based on varying baking hours, payment types and more. Your strategy needs to be optimised for their processes, calling for a close link between your Product, Legal & Finance teams.
  
• Awareness of card issuer limitations: It’s no secret that issuers have made it increasingly difficult (and expensive) for merchants to recover payments. The myriad of fees for “excessive retry” or decline codes suggesting “do not retry” pack a hefty price tag for each initiated payment. This can damage your reputation in the eyes of the issuing banks and cause a snowball effect for increasing declines.
  
• Regular payment processor reviews: Software processing issues are the top reason for failed payments, so correcting any unforeseen problems is key. For example, what payment types does your processor accept? Or is it checking that the billing and shipping address match qualification? These seemingly small features can be the difference between a customer retained, and a customer churned.

Step 3: Align with stakeholders on internal collections processes

After adjusting your strategy to prioritise customer-centric practices, the next step is to determine when and how to collect on open debt without compromising customer goodwill.

First, you’ll need to engage your Finance and Treasury teams to assess the impact of handling overdue accounts internally. From a business case perspective, it’s important to get into the detail:

• How much do you estimate your write-off portfolio to be?
• How much revenue can you recover through internal dunning processes?
• How much potential revenue would your business generate through an extended LTV and lowered CAC?

Beyond revenue recovery, consider other aspects in your needs analysis. This includes your internal teams — particularly the current impact of outstanding payments on your Customer Service, Product, Payments or Finance team. These roles are often on the frontline when it comes to internal recovery efforts, managing customer communications, payment follow ups and more. Gauge their sentiment towards working with a collections partner, as increasing internal pressure is a clear sign that your business is ready to outsource.

The next thing to decide is: what’s the cut-off point for involving a collections partner? For example, this could be when debts are 30 or 45 days past due. This strategic timing allows your internal teams to intervene early enough to manage relationships and recover revenue effectively. It also lets you support customers who have already demonstrated their commitment to your service. If your subscriber responds before the cut-off point, you can save on the extensive costs associated with acquiring new subscribers, such as sales, marketing, and onboarding initiatives.

Ultimately, this step is about blending financial pragmatism with a customer-centric strategy, so you can maintain the delicate balance between maximising financial recovery, easing the pressure on your internal teams, and nurturing long-term customer relationships.

Step 4: Outline the key benefits of outsourcing

1. The revenue uplift

Let’s start with the obvious: revenue impact. Any return on open debt write-offs is a win for all stakeholders, but how can you go the extra mile? Provide recovery return estimates with target liquidation rates and set a benchmark for success. This can vary depending on your customer base and market, but your potential collections partner should provide you with the data to make your case.

2. Preserve your reputation and maintain your customer experience

The tipping point towards engaging an agency for most subscription-based business is the control your brand retains over customer experience. The right collections partner will see themselves as an extension of your brand, protecting your reputation and customer relationships.

Your chosen partner should seamlessly integrate with your customer experience, preserving brand reputation while enhancing operational efficiency. Establish benchmarks for monitoring the partnership’s success, ensuring that the collections process supports both your financial goals and customer retention strategies. This attitude should flow down from their values into their engagement strategy, with a friendly Customer Experience team to match.

3. Cost efficiencies and productivity planning

Another understated benefit of outsourcing collections is the cost saving. Managing recoveries in-house requires additional headcount, software and expertise (at the least). With a partner, you can minimise operating costs and maximise your return — simultaneously. Agency pricing structure can differ, but the standard industry model is commission-only. InDebted takes this approach, and only receives a portion of what’s collected.

For your stretched internal teams, a collections partner can take the bulk of their spilling workload. With simple upload processes, accounts can be transferred in real-time by non-technical roles — which also protects your Engineering and Product teams from being inundated with new tasks. A full service agency will also handle any customer enquiries, preserving your Customer Service team. All in all, the right partner can make your team more efficient, productive, and focussed on your core business.

Step 5: Finding the right provider

To really get the ball rolling, identify your ideal collections partner. To get the most out of a partnership for your business and customers, look for an agency that:

• Prioritises customer relationships: Aside from the usual messaging on their website, you should feel that your customers are truly in safe hands. Ask any potential agencies for an interactive product tour, or real customer reviews to see what customers experience.
• Builds in compliance: Experienced agencies should have a thorough, in-depth understanding of the compliance requirements in their respective regions. Find out how these are built-in to their processes and what safeguards are in place, to protect your business and your customers.
• ​​Delivers high performance for similar businesses: The proof is always in the pudding. Question agencies on their performance with similar accounts, to understand their market expertise and experience.
• Leverages insights with advanced technology: Your relationships with a collections partner isn’t boundaried to ‘amounts collected’. Sophisticated agencies should empower your internal teams with meaningful insights into your customers and how they engage.

Beyond immediate account referral, it’s also important to consider your bigger picture. For example, do you have more products on the horizon, or are you planning to step into a new market? If your customer base is growing, your stakeholders will want to know whether a new collections partner can handle a sudden influx of new accounts and scale with you.

By meticulously planning the timing and selecting the right partner, you can effectively balance revenue recovery with customer loyalty. This preparation will enhance the strategic rationale for outsourcing and set the stage for leveraging the full potential of a collections partnership.

Step 6: Bringing it all together

Getting stakeholder buy-in for a collections partner requires all the above, packaged in a digestible format. To make it more compelling, your potential collections provider can work with you and provide data-backed insights, performance metrics and more. They should also be willing to meet with your leadership teams, to address any potential concerns and outline their collections processes.

A strong internal case for collections will go beyond just revenue recovery — it’ll demonstrate how outsourcing enhances customer relationships and boosts operations, without impacting the purse strings. As you dive in, remember that the right partner will improve your team’s efficiency and streamline your workflow, all while protecting your brand.

Ready to make your case? The next step is to put out an RFP. Check out guide below for our top tips on setting up an effective RFP to select a modern debt collection partner — and get a free RFP template to use instantly, too.