Reducing bad debt to achieve ROI in 12 months for leading mail order business
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Nasser Malik, Financial Services Director at Express Gifts |
Express Gifts is a home catalogue shopping business selling a wide range of products including electrical, gardening and household items via mail order catalogues and various websites to millions of UK consumers through a range of brand names including www.24studio.co.uk and www.24ace.co.uk.
Express Gifts deals with over one million new applications every year using an automated decisioning system with credit scorecards for applicants applying for a credit account. This creates an accurate risk assessment to decide whether to accept or reject an applicant and to set an appropriate initial credit limit.
It has a simple but effective business model: extend credit and financial services to aspirational customers – and offer extended terms for repayment, similar to credit cards. Customers can pay any amount from the minimum to the full balance, using a variety of methods including credit/debit cards, cheques, via post offices and banks, and direct debit.
The Challenge
The company, like many other retailers, has seen a shift in the UK consumer credit market.
A robust collections process is essential in identifying customers before they fall too far into arrears – and rehabilitating them so they can continue buying.
Express Gifts had been using a collections system developed in-house,
but it soon became clear that a specialist collections system was
needed to handle the increasing number of customers in arrears.
As a mainframe based business it was not the norm to buy in a packaged solution so the Financial Department had to build a business case to convince the board as well as the IT team of the value of a specialist collections system versus proprietary software. A thorough review of the leading debt management software suppliers was carried out.
Tallyman from Experian was selected for a number of reasons, including its ability to segment customers in arrears, enabling more customised and strategic communications. It could also be configured to accommodate and integrate with existing processes, an important consideration for Express Gifts’ IT and Operational departments.
“Financial payback is the key driver for boards. We want to know that the IT solutions we are investing in will make life easier for the staff using them – and deliver a tangible and demonstrable return on investment” declared Nasser Malik, Financial Services Director at Express Gifts “Implementing a credit management system is a big investment and needs commitment from all involved departments. Buy-in from Express Gifts’ internal IT department and from customer services was imperative. The value to the business is clear in the improvement in results, and the added benefit is that our customers now receive better service.”
Tallyman is now used to manage around 340,000 customers in arrears with an average debt of about 250.
All customer details are stored on the mainframe system. When a customer falls behind on a payment their details are copied to Tallyman. The customer is then automatically segmented into a high, medium or low risk category based on factors including:
- Trading age of a customer (a customer of 5 years is treated differently to one of 5 weeks)
- Information from scorecards developed with external bureaux
- Previous delinquency history
A variety of methods are used to contact customers in arrears depending on their segmentation. For example, high-risk customers are automatically contacted by phone; while lower risk customers might be left to self-cure or sent a gentle reminder letter.
There are a number of stages for a customer in arrears with each getting progressively tougher. Their effectiveness is constantly measured and improved through Champion/Challenger assessments. The content of letters and phone scripts held on Tallyman are routinely reviewed and changes in customer behaviour measured and acted upon. The system is integrated with all other customer management systems used by Express Gifts, ensuring that customers in arrears are not offered new credit limits. Information from the debt collection agencies used is uploaded every week into Tallyman.
The results
Tallyman delivered a 15% improvement in bad debt and ROI within 12
months. Furthermore, the system has enabled a more flexible approach
to customer relationships, resulting in increased customer retention;
and improved internal processes.
Express Gifts now has a more automated, functional and intuitive system for managing debt and, as time has passed, Tallyman has been able to fully support changing and evolving business requirements.
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