We’ve all heard of customer relationship management (CRM), that box you forget to tick when filling out an online form, the store card that provides information back to the supermarket about how much cheese you buy. But you may be surprised to learn that a debtor profiling form of CRM is used with debt collection.

CRM magazine "My Customer" usefully calls it DRM - Debtor Relationship Management - and DRM is used in much a similar way to CRM; taking data to mitigate risks and improve efficiencies to get smarter ways of collection.

Why use debtor profiling?

In the very first instance, making sure the right address is being used is important. It is surpassing how such a simple action can improve the likelihood of repayment - after all communication is one of the key ways a debt can be resolved.

Other ways profiling can be used is to find out the nationality of the debtor. This may sound simple, but again, that advanced knowledge allows communication to come freely and add to a successful resolution.

Data analysis

Data analysis can examine when past payment has been made and indicate the likelihood that a collection would be easier or harder to implement and how that collections should be made - simple communication or a trip through the courts.

CRM uses analytics to test risk and contact mitigation strategies and this use of data can be transferred to debtor profiling in various ways from simply finding out an individuals circumstances - such as are they declared bankrupt? - to using postcodes to indicate risk.

For instance, the British Bankers Association releases a geographical breakdown of lending in Great Britain providing a postcode breakdown of the low and high levels of debt.

And it is not just the levels of debt. Data can show you not only what age and what amount an average postcode may owe but in some cases, such as from the Greater London Authority, can even show how one London postcode, for example, has had over 200 people seeing debt advice.

These breakdowns can be used, along with employment and economics data to inform about the profiles of debtors in an area so that there can be an educated assessment on the likelihood of a debtor paying up.

For example, in Australia, areas in decline such as mining towns are considered high risk, therefore the likelihood of an ease of repayment could be lower than say someone in a services area such as a major city where the chances of employment and therefore future income and repayment could be considered higher.

Postcode analysis

Using postcodes as part of the larger profiling allows companies to consider debtors in terms of can’t pays and won’t pays which allows an initial strategy to be considered before drilling down into the individual’s circumstances.

However, using this kind of technology brings its own risks - namely the data protection act - and it is important to learn all the current and upcoming legislation on the use of personal data so you don’t fall into any regulatory minefield that will hinder your business or damage your reputation.