Putting your collections strategy to the test with a champion-challenger model

How do you know if you’re getting the most out of your collections strategy? Have you considered exploring other options in the market? Using a champion-challenger model, you can introduce healthy competition to drive performance uplifts across multiple areas. 

Let’s break down the benefits, and how it works. 

In collections, the champion-challenger model is used to test an existing collections strategy (the champion) against a different approach - the challenger. But they also provide more benefits than just identifying the strongest performing strategy - you can also gain insights to:

• Design a set of key performance indicators (KPIs) that matter most to your business
• Test different collections strategies and compare performance within a controlled space
• Identify specific areas for improvement within your panel of agencies
• Generate healthy competition for your wallet share, rewarding agencies who exceed your KPIs with increased volumes
• Understand which agency, strategy and engagement tactics best align with your product and account types

Revolutionising your collections starts with weighing up the true effectiveness of your strategy. Let’s break down the champion-challenger model, sharing detailed insights into how we’ve seen this implemented before to drive maximum returns.

You’ll need internal buy-in with a clear and risk-controlled business case

You’ll need a specific collections objective in mind. What are you trying to achieve? Once you’ve got a clear understanding of the opportunities for improvement, the business case becomes easier. This could include: 

• Diversifying your existing collections panel to bring fresh  expertise and try new ways of engaging customers 
• Putting your existing in-house strategy to the test in a controlled environment against a third party agency
• Preventing an overreliance on a small number of agencies to spread your risk and reduce account volume concentration
• Challenging  your existing third-party collections partners to innovate 
• Testing a digital-first, omnichannel strategy,  particularly if your existing strategy is  reliant on  traditional methods to contact customers such as calling and sending letters

Once you’ve identified your goals, thinking about how you’ll minimise risk of financial loss by creating a controlled environment is key to getting buy-in. You could consider segmenting your accounts within specific parameters, and going to market for solutions that have proven to perform successfully within similar demographics, vintages or debt types.

This strengthens both your internal business case with key stakeholders, so you can effectively put your proposed challenger to the test.

Use a balanced scorecard to evaluate strategies and performance  across the same benchmarks 

To fairly compare your champion and challenger, outline the metrics that matter most to your strategy and objectives. A balanced scorecard is used across industries to drive performance and uncover opportunities, particularly in financial services. Well-rounded collections scorecards look at multiple areas: 

• Performance - those all-important metrics can include liquidation and spindown, all the way through to payment plans created and channel performance.
• Quality assurance - scores, calibrations and audits are regularly conducted and monitored to ensure positive customer experiences that meet all compliance requirements.
• Client service - dives into how collections teams are supported on an ongoing basis, including response times, and regular reporting.
• Technology and innovation - how existing technologies are performing, and the overall attitude to collections innovation.
• Data - some scorecards even grade on the value and accuracy and frequency of data and analytics.

Some areas are measured quantitatively using regular reports and audit processes, while qualitative metrics can also be observed during meetings. The scorecard approach is valuable to trial champion challenger strategies and agencies, and it can also become embedded in your ongoing collections processes to truly drive performance.

Review results and assign allocations accordingly

Here’s where the scorecard approach really demonstrates its value. 

Whether you’re using a scorecard to weigh up different agencies, individual strategies, or comparing third-party to in house collections, we advise doing this over a three to six month period. You’ll get a clear view to understand how allocations should be adjusted according to which approach delivers maximum results to influence allocations moving forward. 

Introduce a challenger to elevate your collections

Whether your ultimate goal is to trial a new approach to collections or diversify your existing panel, adding a challenger to the mix is a sure path to improvement. The added competition challenges your collections partners to adapt and grow, and gives a fresh perspective on your existing strategy. A champion-challenger model will do more than improve your collections - it’s beneficial for innovation, culture, and most importantly - providing your customers with the best experience possible.