Scoring, Segmentation & Selection – Critical Elements to a Successful Legal Strategy

As we noted in an earlier article, the era of ultra-low charge-off rates is not going to last forever. When delinquency rates begin to climb towards the back end of 2021, we don’t expect it to be gradual. With the outlook for an economic recovery to occur as early as Q4, now is the time to revisit the accounts that are likely to require a legal collection strategy.

A strategic litigation program is a critical component of a comprehensive collection strategy. We are often asked how scoring, segmentation and selection play a role in a litigation strategy. Without the ability to properly select and segment legal eligible accounts, the legal strategy will not be optimized and wasted court costs will significantly impair overall returns. Below are several reasons why utilizing a predictive legal selection model is the optimal path for accounts that won’t respond to traditional voluntary collection strategies. A case study follows to demonstrate real world results.

  • Applying a litigation strategy to the correct accounts will result in net recovery that is 10+ times higher than any alternative collection strategy.
  • Litigation programs have an extremely low level of risk when using collection law firms with reputations for compliance when coupled with a robust audit and oversight program.
  • A scoring and segmentation model can reduce wasted court costs, improving net recovery results.
  • Initiating legal proceedings locks in the client’s statute of limitation rights and hence a much longer runway in which to collect, thereby giving the customer more time to rehabilitate or locate a source of money by which to satisfy the debt.

ProScore is a scoring and selection model built by Harvest over 13 years and validated with over 500,000 accounts, that is proven to select the right accounts for litigation. The focus of the model is return on court costs, which means wasted court costs are minimized (and this is the enemy of success for litigation programs).  

What are “wasted court costs”? In most states, the lawsuit has to be filed before it can be served on the defendant.  Filing the law suit is the largest part of the overall court cost expense. Therefore, if the law suit cannot be served, those costs are wasted because litigation cannot proceed. Likewise, if the law suit is served and converted to judgment but the customer never pays, those costs are wasted as well because they did not produce any recovery. While these two situations cannot be eliminated, they can be managed with a model like ProScore.

For example, one of our clients had a long-standing process of letting collectors select accounts for litigation, which were then sent through a number of filters before being assigned to an attorney. We recommended using ProScore instead. The client decided to continue using their collector-driven strategy, but we scored the accounts in parallel to track the results.

Fast forward 4 years to see how the story becomes entirely different when looking at recovery net of court costs, taking into consideration wasted court costs as well. See what we found;

  • 90% of the recovery could have been achieved by litigating only the top 50% of the accounts – thereby spending 50% less in court costs.
  • 100% of the recovery could have been achieved by litigating the top 75% of accounts, thereby achieving the same level of recovery while spending 25% in less in court costs.

In this example, we were able review the data with the client and show how ProScore dramatically improves net liquidation and lowers court costs. Plus the new scoring model is entirely data driven, requiring no collector input, so collectors can do what they do best (communicating with consumers to resolve accounts so they don’t need to be litigated). In conclusion, the results of a litigation recovery strategy can be greatly impaired by wasted court costs. Using a scoring and segmentation model like ProScore can dramatically increase net recovery. By scoring accounts early in the process, companies can determine the best path for their accounts and make important strategy decisions now, rather than waiting until it is too late.

For more information, contact Jamie Welsh at (303) 531-0654 or jamie.welsh@harveststrategygroup.com.

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