Operations2 min read
Designing an escalation ladder that stops at the right rung
Escalation is easy to design going up and almost never designed going down. The result is an operation that spends its most expensive resources on borrowers who would have paid after a message.
An escalation ladder is the sequence of increasingly costly interventions applied to an account that has not resolved: a message, an automated call, a human call, a field visit, legal notice. Most lenders have one. What most lack is a rule for stopping, and a ladder with no brake is a machine for spending money.
Order the rungs by cost, then by intrusion
The two orderings mostly agree, which is convenient. A message costs paise and intrudes least. A field visit costs the most and intrudes most. Starting at the bottom is both commercially and ethically correct, and the argument for skipping rungs is almost always impatience dressed as efficiency.
The rules that should govern moving up
- Only after the current rung has genuinely failed, which means delivered and unanswered rather than simply sent.
- Never faster than the borrower could reasonably have responded. Escalating within an hour is not escalation, it is pressure.
- Not at all if the borrower has engaged. A borrower who replied, disputed or asked for time has moved the account into a different process.
- Subject to a cost ceiling for the cohort. A five-hundred-rupee arrear does not justify a field visit, and the ladder should know that without a supervisor intervening.
The missing half: coming back down
When a borrower makes contact, makes a part payment or agrees a plan, the account should descend the ladder rather than continuing up it. Very few implementations do this, which is why borrowers who are cooperating still receive escalating pressure, and why a good proportion of complaints come from people who were actually paying. De-escalation is the single most under-implemented idea in collections strategy.
Stopping altogether
Some accounts should exit the ladder. Confirmed hardship, a dispute under investigation, a deceased borrower, an account in a legal process, or a cohort where the marginal cost of the next rung exceeds the expected recovery. Each of these needs an explicit exit rather than a caller deciding informally, because informal exits are invisible and unauditable.
How to know yours is working
Look at what proportion of accounts reach the most expensive rung, and what those accounts recovered. Then look at what proportion resolved at the first rung. In a healthy ladder the first rung does most of the work and the last rung is rare and selective. If the distribution is flat, the ladder is not a strategy, it is a queue that everybody eventually reaches the end of.