“Be Prepared” has been the motto of the Boy Scouts of America ever since the youth organization was founded in 1910. It should also be the motto of any tax season collection strategy.

To a scout, the motto translates to being ready and equipped for any life situation. To a third party collection agency, “be prepared” means maintaining a sound agency framework in conjunction with everything needed to create client satisfaction during tax season and beyond.

More specifically, it means developing the means to address a large number of debtors who anticipate receiving tax refunds from the IRS between February and May. The goal of agencies and their clients is for debtors to apply all or part of those refund dollars to their past due accounts.

So, how does a third party collection agency prepare for tax season?

This article will cover:

Preparing the agency framework.
Preparing agency operations.
Preparing the agency work force.
Summary of a tax season collection strategy.

Preparing the Agency Framework

In order to launch a successful tax season collection strategy, best-in-class agencies establish a framework of compliance, certification, data security and receivables management software.

Compliance

Compliance management systems (CMS) help agencies navigate the laws related to credit and collections (e.g. FDCPA, FCRA and TCPA). CMS include related policies and procedures such as internal management audits, vendor management policies, data security policies, payment processing procedures, complaint and dispute resolution policies, record retention guidelines and training (programs, scheduling, tracking and documentation).

Certification

Those same agencies maintain a variety of certifications such as licenses and bonds in all 50 states as required. Other certifications confirm:

A clients’ ability to maintain internal control over agency financial reporting (SOC 1 Type II).
The effectiveness of non-financial reporting controls related to security, availability, processing integrity, confidentiality, and privacy (SOC 2 Type II).
The secure technical and operational requirements for agencies using, storing or transmitting payment card data (PCI DSS 3.2).

Some agencies qualify for the highest standard of certification – the Professional Practices Management System (PPMS) designation by ACA International (less than 2 percent of agencies maintain this distinction).

Technology

Agencies rely on collection software platforms to help manage the operational framework before embarking on a successful tax season collection strategy.

These suites may be used to form business rule automations, database management, electronic payment processing, the generation of client statements, and transaction auditing. Furthermore, they support compliance integration with laws such as HIPAA, GLBA, FCRA, FDCPA, SCRA and TCPA.

Other technological features include hosted dialers; skip tracing; interactive voice response technology (IVR); options for manual, power and predictive dialing strategies; answering machine detection; integrated cell phone consent and scrubbing capabilities; and collector conversation management. These components manage how and when to make compliant contact with consumers.

Finally, collection software should be fully integrated with the account scoring, segmentation and reporting processes discussed below.

Preparing Agency Operations

Operations leaders at third party agencies prepare a tax season collection strategy by monitoring and maintaining the collections process from top to bottom. Focus areas include compliance, the programming of the collection software, analytics, scoring and report generation.

In particular, operations leaders leverage strategic predictive analytics to create cost-benefit analysis, simulations to determine break-even points, and advanced scoring methods to compare segmentations affecting individual accounts. They also use predictive models for analyzing past consumer behaviors to forecast the likelihood of future action such as responding to past-due notices, attrition or churn.

Strategic Predictive Analytics

Top agencies establish an individualized tax season collection strategy for each client with the help of strategic predictive analytics and receivables management software. In doing so, the data processing advantages of traditional analytics are integrated with techniques such as cost-benefit analysis, real-time strategy simulations, and prioritizing collection activities with account scoring.

With successful simulation models in hand, operations directors rolled out the strategies to the appropriate account segments to begin or revise collections. The most versatile software packages can code individual accounts to create customized treatment of each consumer and the prompt most favorable outcomes.

Multiple reports and score cards are conducted after applying segmentations to evaluate the performance of the revised strategy and individual collectors over collection periods such as daily, weekly, monthly, quarterly, yearly, and year-over-year.

Account Scoring

Agencies often optimize decisions and debt recovery by applying risk, collection and or recovery scoring to accounts. These scoring models are based on credit bureau scores, internal scoring systems, or a combination of both sources. Account scoring improves collections, reduces roll rates, minimizes charge offs, and assists in the prioritization of accounts by determining their expected outcomes.

Risk scores assess the likelihood of accounts becoming seriously delinquent (60 days or more past due) over the next six months.

Collection scoring predicts what will happen to an account over the next 30 to 60 days using important data points. Collection scores identify:

A willingness and or ability to pay.
The likeliness of a consumer making a payment in the next 30 days.
Self-curing accounts (i.e. those that may return to good standing during the current cycle).
Cost-effective ways to consumers (e.g. email or letter campaign versus phone calls).

Using other scoring models, early-stage collection scores identify accounts expected to roll into later stages of delinquency while late-stage collection scores provide more data to collection strategies.

Recovery scores are considered more accuracy than generic versions since they apply to specific debt types, debt age and industries.

Segmentation

The modern approach to segmentation is more accurate than old-school applications that simply assigned the highest priority to accounts with the largest balances or highest credit scores and the lowest priority to those with the smallest balances or lowest credit scores.

Today, account scoring aggregates consumers with similar payment trends and risk profiles (low, medium and high) to create better recovery results. Consequently, the segments are a function of delinquency stages that prompt agencies to consider:

The probability of late-stage delinquency.
The probability of mildly delinquent accounts becoming seriously delinquent.
The amount of debt that can be recovered from seriously delinquent accounts.

To improve outcomes, portfolios are segmented into collection models that focus on accounts with the greatest expectation to pay as they relate to their early-stage or late-stage collection scores. These models identify the type of strategy (e.g. letter or phone), the message and appropriate tone, and the best timing (immediate or delayed). Individual accounts sometimes receive special treatment after the fact using data from the collections software and collector notes.

Reports

Reporting contributes documentation, transparency and accountability to the knowledge pool. Agencies run a variety of standard and customized reports for internal management and clients according to pre-arranged schedules.

Standard reports document bankruptcies, call and letter campaign logs, compliance training and management, payments by consumers, internal and external audits and more.

Other reports address the effectiveness of agency operations (e.g. individual, team and bucket scoring; right-party contacts; dialer efficiency and conversion rates; and gross amounts for day-to-day, week-to-week, month-to-month and year-to-year collections).

All reports can be customized and delivered in the frequencies expected by clients.

Preparing the Agency Workforce

Hiring and properly training new collectors are also important aspects of preparing a tax season collection strategy. These processes should be ready for the start of tax season which officially launches in late January when the IRS begins accepting online tax returns.

New consumer relations reps are expected to achieve a thorough understanding of federal and state laws as well as in-house training manuals covering policies and procedures in areas such as consumer telephone calls, collection notices, consumer disputes, data security and personal belongings, and corrective actions.

Furthermore, each collector must sign the ACA international Collector’s Pledge and pass an FDCPA exam before they are permitted to engage consumers via telephone.

Agencies also hold monthly compliance meetings for collectors, clerks and the management team. The agenda covers the relevant federal laws, a review of recent performances, details regarding the previous month’s audit results, and compliance changes that could potentially affect tax season.

Summary of a Tax Season Collection Strategy

Optio’s tax season collection strategy is based on a foundation of compliance, quality assurance, certification, data security, collections technology and more. Optio is one of only 50 agencies worldwide to have received PPMS certification from ACA International.

In addition, the agency is part of an organization with over 35 years in financial services and collections.

Optio clients benefit from a favorable return on investment, brand protection and customer retention.

Contact us today to discuss an individualized tax season collection strategy for your organization that begins this fall.

About the author

Joe Gargiulo

Marketing Specialist Joe Gargiulo has 25-plus years in marketing, communications and copy writing. As a writer, he enjoys connecting story leads to all aspects of the human experience.