Five KPIs for the collections department

Understanding the most important factors in determining client payment for services

In the world of collections, key performance indicators (KPIs) are incredibly pervasive – and vitally important in measuring recovery on receivables.

KPIs are a form of measures used in evaluating how well an organization or employee is meeting certain performance goals.

The raw number of available KPIs can get overwhelming. How does one distinguish the most relevant to your bottom line?

Although what fits best may vary for different collections departments and organizations, and many collections professionals may have their own favorite KPIs, below are the five that are the most likely indicators of the success and health of your operations.

Days Sales Outstanding (DSO)

DSO is the number of days it takes a customer to pay after an invoice has been generated or a sale has been made.

One of the most commonly used metrics, DSO is used to calculate how long, on average, it takes to collect from debtors. This makes it easy to compare the performance of your organization against others in the industry to see whether and by how much your performance could stand to improve.

Ideally, the number should be as low as possible, as a higher number reflects a lack of effectiveness on your organization’s part.

However, it’s definitely worth noting that the metric generally only provides a more global view of your organization’s efficiency, and you must rely on other KPIs for more specific details on particular aspects of your organization’s operations.

Collector Effective Index (CEI)

CEI provides another global view of your organization's operations, and is a commonly-used KPI that is sometimes confused with DSO.

However, this metric reflects an organization’s ability to retrieve their accounts receivable from customers. It is a measure of the amount collected during a specific period of time against the amount of total receivables during that same period.

CEI is measured as a percentage, with an organization at 100% CEI collecting all of its total receivables ever invoiced. As an organization lowers its DSO numbers the CEI should increase correspondingly.

CEI should likely be measured by just about any collections organization, as it can track the direction in which your operations are moving over longer periods of time.

Right Party Contacts (RPC) rate

RPC rate is the first of the more specific metrics on this list.

This KPI measures the ratio of all outbound calls that were made to a valid phone number of the person from whom collection is sought (or a “right party”). For collections organizations, the higher this number, the better, since a high score indicates a high success rate of locating debtors.

Clearly, actually locating and connecting with the correct person is the first step to collecting a debt, and if your organization’s RPC rate is lower than other peers in the industry, you likely have to take a hard look at what’s going wrong, and how you can improve these numbers.

There are a variety of other KPIs related to calls, such as the number of calls handled and average call time, but perhaps the most relevant to the efficiency and success of your organization is whether these calls are connecting to the correct individual on the other end of the line – which is exactly what the RPC rate measures.

Any collections organization with a call center should be using this KPI, and the metric may be improved through using a sophisticated proprietary data and public records solution that leverages real-time data to get the most information possible on the debtor in question.

Percentage of Outbound Calls Resulting in Promise to Pay (PTP)

The PTP rate is as important as your RPC rate in measuring efficiency, and it is the next logical step to a successful collection of debt.

With its label being as descriptive as it is, this KPI may not warrant much of an additional explanation: It measures the percentage of all calls made that ended with a promise to pay by the debtor.

In short, where the RPC rate measures the success rate of dialing the correct individual, this metric measures the success rate of those RPC calls. This is another percentage that you want as close to 100 as possible.

If your numbers are lower than your peers in the industry, you may have to evaluate the tactics being used by your employees during these calls – not to mention any related employee training programs.

While there is nothing short of a glut of KPIs available for tracking the performance of your collections employees, the PTP rate, together with the RPC rate, probably offer the two best ways to look at your organization’s level of efficacy in practice.

Locating the correct contact is essential to securing a promise to pay. And one of the fastest and easiest methods of finding a correct contact is through a technology solution that offers copious, up-to-date data from sources such as utilities and credit reporting agencies, and one that can dig even deeper by locating known associates of your search target.

Profit per Account (PPA)

Finally, PPA measures how much profit is generated on average by each account in collections. In short, this KPI measures how much each account impacts your bottom line.

The metric is calculated by dividing your organization’s gross profit (which is calculated by subtracting total operating expenses from total revenue) over a specific period of time, and dividing that by the total number of delinquent accounts managed during that period.

There are a variety of factors that can work to hinder efforts to maximize profits, essentially all of which can be traceable to one of the inputs in the PPA calculation (i.e., revenue, operating expenses, number of accounts managed, etc).

For that reason, it’s likely a good idea to monitor how those inputs are performing over time as well, allowing you to better understand how changes directly impact your bottom line.

For example, too sudden of an increase in accounts managed without a corresponding increase in gross profit may lower your PPA. Perhaps further analysis can identify an age beyond which accounts are very unlikely to produce a return of any kind, and thus it would be a waste of resources to attempt to collect on them.

Caution may be necessary here, since the constant effort to control costs may limit the tools available to your organization to maximize its effectiveness. Thus, although costs must indeed be monitored and controlled, the return on investment offered by such tools often outweighs the upfront expense in productivity gains several times over.

Organizations will likely want to use even more KPIs than these five, and there is certainly no shortage to choose from.

Nevertheless, these specific metrics have been highlighted as those that may be the most telling on the overall health of your operations.

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