Understanding Flow Rates
Flow rate is the percentage of delinquent balances that flows from one delinquency cycle to another. For example, if the total balance of delinquency cycle 1 (DC1) accounts in the previous month was USD100 million and the total balance of delinquency cycle 2 (DC2) is now at USD50 million, the flow rate for DC1 to DC2 would be 50%.
You may also use this to monitor the rate at which the volume of accounts flows from one cycle to the other. Most of the time, though, flow rate value or balance is used to gauge the performance of your collections team, given that the main component in computing delinquency is the amount of delinquent balances in your portfolio.
You may, however, use flow rate volume to get additional information when you analyze your portfolio. For example, suppose your flow rate value experienced a significant increase, yet the flow rate volume remained the same or even slightly decreased. This means that accounts with higher balances are driving the rise in delinquency. You can then initiate a deep dive and determine whether these accounts belong to a specific card type, customer profile, etc. Flow rates act like an early warning device for potential problems. The earlier you see a spike, the better your collection team’s response can be.
Please note that it is normal for flow rates to increase as you move to higher delinquency cycles (see sample flow rate table below). Aside from having lower contact rates, the type of clients your collection agents will encounter will be significantly different from those in Frontend. Even if some of them are still contactable, their ability to pay is already compromised. Moreover, it is highly likely that these customers owe debt to more than one lending company. This makes collecting from them much more difficult. All these factors contribute to the higher flow rates that you see when you move up the delinquency ladder.
Conclusion
As mentioned earlier, flow rates can act like an early warning device for your collections team. When they see sudden spikes, they can immediately ask your analytics team to do a deep dive to understand what’s causing the increase in delinquency. And based on the information they get, they can employ various collection strategies that can help lower the flow of delinquent accounts from one bucket to the next.
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