Navigating the collections landscape can be confusing, especially with all the specialized terms and acronyms that come into play. Whether you’re a professional in the field or a business owner looking to understand how your collections team operate, it’s important to get a solid grasp on the language used. That’s why we’ve created this straightforward guide. It breaks down key terms, from PTP to RFD, into easy-to-understand explanations. Consider this your handy resource for decoding collections jargon and making informed decisions.

PTP (Promise to Pay)

Simply put, this is when a cardholder commits to paying a certain amount by a specific date. Easy enough, right?

Kept Rate

Kept rate is the number of customers who fulfilled their PTPs and paid at least the agreed amount over the total number of PTPs for a specific period. For example, if an agent was able to get a thousand PTPs within one month and 520 clients paid at least the agreed amount on the agreed date, the agent will have a kept rate of 52%.

Broken Promise (BP)

Ever agreed to do something and didn’t? That’s a Broken Promise in the collections world. Companies usually offer a grace period before tagging a promise as ‘broken,’ but the length of that grace period can vary depending on what your collections team deems appropriate.

RFD (Reason for Default)

RFD is “Reason for Default. It is the “why” behind a Broken Promise. Was it a job loss or maybe an unexpected bill? Knowing the RFD helps identify sudden changes in payment behavior and enables your team to adapt strategies accordingly.

RPC (Right Party Contact) Rate

RPC or Right Party Contact is the ratio of outgoing calls that resulted in successful contact over the number of all outgoing calls. Contact is considered successful if an agent is able to talk to a client or an authorized representative. For example, if an agent was able to talk to 100 people for one day and only 25 of them were cardholders or authorized representatives, that agent would have an RPC rate of 25%. Knowing your overall RPC rate can be very rewarding as it can give you a quick reading on the quality of your portfolio. If you always get a low RPC rate, it can signify that the quality of accounts you have is quite low. It can also indicate that your agents have poor probing skills and need further training.

Flow Rate

Flow rate is the percentage of delinquent balances that flows from one delinquency cycle to another. For example, if the total balance of DC1 accounts in the previous month was USD100 million and the total balance of DC2 is now at USD50 million, the flow rate for DC1 to DC2 would be 50%.

There are two types of flow rate you can use:

1. Flow Rate (Value): Based on the balance of delinquent accounts.
2. Flow Rate (Volume): Based on the number of delinquent accounts.

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. If you want to learn more about this topic, you can read the article we wrote about it by clicking on this link – What are Flow Rates?

Write-off

Writing off accounts is an accounting action that a lot of credit card issuers practice. Accounts with a very low probability of collection will be written-off and removed from the company’s accounts receivable. The cut-off for most card companies is at 180 DPD. It can be done earlier or at a later period, depending on the company’s preference.

Writing off accounts doesn’t necessarily mean that the cardholders will be absolved from paying their debt. Collection actions post-write-off may continue, but most of the time, this will be conducted by accredited third-party collection agencies.

Coincident Delinquency

This ratio gives you a quick health check on your portfolio by comparing delinquent balances to the total non-written-off balances. Coincident delinquency is the ratio of all delinquent accounts 30 DPD & above and the total balance of all non-written off accounts. This is the easiest way to conduct a quick health check on your portfolio if you need an indicator right away.

Lagged Delinquency

The gold standard in collections, Lagged Delinquency uses a method called vintage analysis to give a more accurate assessment of your portfolio’s health. This takes into account the period or month in which the accounts were opened. Instead of using the current balance of all non-written off accounts, the denominator for each delinquency cycle will be the total non-written off balance when the accounts in question were opened or were in delinquency cycle 0. To learn more about Lagged Delinquency and why it is much better than Coincident Delinquency, you may read our blog about the topic by clicking on this link – Lagged Delinquency: What Is It and How Do You Compute It?

Conclusion

For professionals in the financial industry and business owners overseeing collections teams, having a robust understanding of industry-specific terminology is more than just beneficial—it’s critical for effective management and decision-making. This guide provides a comprehensive overview of essential jargon, helping you navigate complex financial scenarios with ease. From assessing the effectiveness of your collections operations via metrics like Kept Rate and Flow Rate, to gaining deeper insights through understanding terms like Lagged Delinquency and RFD, this resource aims to elevate your industry-specific communication and decision-making. The next time specialized terms arise in meetings or reports, you’ll be fully prepared to contribute in an informed manner.

Eager to elevate your debt collection management strategies? Dive deeper into this subject by enrolling in our comprehensive Debt Collection Management Masterclass. Click the link and let’s transform the way you handle debt recovery.

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