Last Updated March 2023
Tax season is the best time to consider a debt settlement campaign within your debt collection agency. Collection settlement campaigns (periods during the year when collection agencies offer a discount to consumers to collect on older or unresponsive accounts) can be a win-win solution for both you and your consumers.
A debt settlement campaign can help your agency to liquidate inventory more quickly, increase revenue for you and your clients, and increase the energy and morale on your collection floor. At the same time, your consumer gets a deal, reduces their debt, and has more money left over for other expenses.
Collection Boot Camp panelist Shawn Suhr, CEO of Continental Credit Control, first learned of collection settlement campaign tactics from former California Association of Collectors’ (CAC) president Matt Logan. Since then, he has spent much time developing his own formula for running a successful debt settlement campaign within his agency.
He shared his expert advice on the subject during the centennial CAC conference last October. Here are the debt collection methods he proposed that can help your agency boost collection revenue.
Shawn Suhr
Debt Settlement Pros and Cons
When does accepting less make sense?
A collection settlement campaign can be effective in recovering funds you might not regain from consumers otherwise. However, you must have set criteria for which types of debts you include in this campaign. Here are a few items to consider when deciding whether it makes sense to settle for less:
HAVE YOU PURSUED ALL OTHER OPTIONS?
Because a debt settlement campaign offers to reduce the amount of debt owed (sometimes by as much as 50 percent), you should not consider this process until after your usual collection strategies have been exhausted.
The ideal consumers for this debt recovery program are those who have failed to pay during other attempts to collect, yet still fall in a collectability scoring range that indicates they are still likely to pay.
Be sure the accounts you include are not too young. Suhr’s agency uses this campaign to collect from accounts between 9 months and 3 years from the date of placement, which allows your agency enough time to attempt other methods of collection before resorting to debt settlement.
IS THE CONSUMER ON A PAYMENT PLAN?
If a consumer is on a payment plan, or has made payments recently, it doesn’t make sense to include them in your settlement campaign. Offering to take less from a consumer that is complying with the regular collection process will cause you to lose money you could have easily collected.
However, if a consumer has made payments before but has stopped responding to standard collection methods, they may still be a good candidate for a settlement campaign.
HOW ABOUT WHEN THE CONSUMER CALLS YOU OUT OF THE BLUE?
This is likely because they have noticed they have the debt on their credit report and would like to get it taken off.
If you have recently spoken to consumers, you may not want to include them in the debt settlement campaign. The recent contact indicates that they may be willing to follow the regular debt collection process.
WHAT TIME OF YEAR ARE YOU RUNNING THE CAMPAIGN?
End of year is NOT a good time to recover funds. This is when people are spending money on Christmas presents and other expenses, and don’t have extra money to pay debts.
The best time of the year to collect is after a tax refund or when a tax refund is anticipated. The extra money from a refund check can push consumers to resolve unpaid debts.
Decide on Accounts to Target
1. Have all other options been pursued?
2. How old are the accounts?
3. Is a payment plan currently in place?
4. Has the consumer contacted you recently?
5. What time of the year is it? Tax season is usually the best time.
Running a Tax Time Debt Settlement Campaign
To help your agency create your tax time campaign, Suhr shared some facts about Continental Credit Control's settlement program. Here are a few specifics:
- The campaign runs from February 15 to May 15
- In 2017, Suhr’s agency sent out 15,000 debt settlement letters offering discounts
- Accounts were aged between nine months and three years
- Only accounts with the highest recovery score were selected
- Continental Credit Control used Experian’s Retail Recovery Score and included those with scores of 540 and above
- Offers were mailed for a 30 percent to 50 percent reduction of the original amount due
To roll out a collections campaign release, be sure you have the accounts scored in advance. This gives your agency time to determine which accounts should be included in the campaign. It also allows your agency time to prepare collection settlement letters with appropriate dates and owed amounts, so the notices arrive to debtors around the desired date.
Along with the letters, Suhr’s company uses a call campaign about halfway through the selected dates of the collection settlement campaign. This gives consumers time to respond to the letter when received and reinforces the message with the calls.
Add Digital Strategies to Your Debt Collection Process
Now that the Consumer Financial Protection Bureau (CFPB) has finalized Regulation F, digital collection strategies can now be implemented in a tax season debt settlement campaign.
Agencies can reach out to consumers through email and SMS in order to drive consumers to self-manage and make a settlement payment through online payment portals.
Continental Credit Control's 2017 Tax Season Campaign
Continental Credit Control saw a 300 percent return on investment (ROI).
50 percent of the revenue came during the last month of the three-month-long campaign.
They received a 1.5 percent to 3.5 percent response rate. The range of rates are due to tracking of campaigns for individual clients of their agency.
Debt Settlement Campaign Results
300% Return on Investment (ROI)
50% of revenue came from the last month of the three-month-long campaign
1.5% - 3.5% response rate
Keep These Collection Strategies in Mind
Be selective about the accounts you decide are eligible for this program. If you offer to reduce the amount due on an account that hasn’t gone through normal collections, you may be leaving money on the table. If you select accounts that have aged too long or have a low collection score, it might not be worth the effort and expense to include them in this campaign.
When running a collection settlement campaign, you must have permission from your client ahead of time. Suhr obtains permission from clients by building this collection strategy into his collection agreement. Other agencies have used debt settlement permission as a check-in with clients to ensure they are happy with other aspects of their relationship.
This debt collection strategy isn’t successful for every client. Be sure to monitor the campaigns you run and keep your clients informed. When a segment of accounts settle in high numbers as a result of your efforts, you may use this as proof that you are the right debt collector for the client. When campaign results are lower than you’d hoped, communicate that too. Even if a debt settlement campaign wasn’t a success, you can still prove your worth to clients by showing a willingness to learn from your mistakes and adjust for the next year’s campaign.
Start small. Begin with a few classes of accounts and monitor the results. Suhr says you know a campaign isn’t working if you have less than a one percent response rate from consumers. If this is the case, you may reconsider using debt settlements as an action plan for debt collection on these particular clients.
Mail collection settlement letters in multiple batches. If you mail all your campaign letters on the same day, you increase the chances of flooding your office with calls. To avoid an overwhelming number of calls to your office all in one day, space out the letters you send to give yourself time to help every consumer.
If you write language giving a deadline for payment, or specifically mentioning that this is a one-time deal, stick to these facts. Not adhering to this is a violation and can even lead to litigation. Ensure you have “safe harbor” language on your settlement letters, such as a statement that your agency is not obligated to honor the deal beyond the listed end date.
The key to a successful debt settlement campaign is monitoring your statistics right away. Analyze your data while the information is fresh in your mind. Suhr makes a point to have all data analyzed within 15 days of the campaign’s end.
Metrics for a Collection Settlement Campaign
Some key metrics to consider when creating lists for your debt settlement campaigns:
- Age of the account
- Number of letters previously sent
- Number of days since last letter was sent
- Number of days since last attempt/contact/promise/payment
Don’t throw more money at overworked accounts. Suhr urges collectors to “go through and mine your data. Try to figure out what is the best class of consumers and at what dollar amount you want to send to a campaign.”
At Continental Credit Control, any account under $250 is not considered worth offering a settlement. Being strategic and setting these types of limits is important. As Suhr said, decide on a range for each metric and stick to it. This is the best way to create an appropriate group of recipients that are the basis of a successful campaign.
Key Metrics for a Debt Settlement Campaign
Age of account
Number of letters sent or contact attempts made
How many days since a letter was sent?
How many days since last attempt/contact/promise/payment?
Protecting Your Agency
DON'T USE THE WORD "SETTLEMENT" WITH CONSUMERS
ONLY MENTION CREDIT REPORTING WHEN THE ACCOUNT IS/WILL BE REPORTED
SEND EACH GROUP A SEPARATE LETTER
DO NOT MENTION HOW CREDIT MIGHT BE AFFECTED
CHOOSE CLEAR, UNAMBIGUOUS LANGUAGE
Otherwise, your statements may be viewed as misleading.
- Using the word “if” or “if applicable” is not sufficient
- Making “true” statements is not sufficient
- Communicate in ways that make it impossible to be misunderstood
DON'T SAY THE SETTLEMENT OFFER ENDS IF YOU WILL STILL HONOR IT LATER
HAVE AN ATTORNEY REVIEW YOUR LETTERS
Even statements you may view as harmless can sometimes lead to litigation. For compliance and risk management purposes, it is important to have any written communications with clients reviewed by a lawyer first.
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- ABOUT THE AUTHOR -
Hannah Huerta, Marketing Specialist
Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.
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