Automated Collection Process & Strategy
Recessions aren’t anything new. 1999 heralded the beginning of the dot-com bust. 2008 brought the housing and sub-prime loan crash. And today, even though the country is starting to emerge from the coronavirus lockdown, the 2020 recession is expected to be the worst since the Great Depression.
A recession is anything but “business as usual”—not for consumers, governments, corporations or lenders. Even in good times, a safe credit risk can hit a rough patch, forcing the borrower to choose between making that new car payment or paying for food or healthcare. With rampant unemployment, millions of borrowers will or have already experienced this problem, all within a relatively short period of time and often lasting for months or even years.
Ordinary collections processes don’t work in times like these, nor are they entirely fair to borrowers who’ve lost their income through no fault of their own. So, unless a lender is willing to write off all those past due payments—or the balance of the loans themselves—they have to adjust their collections approach to reflect the times. To do that, they have to look beyond the static procedures in their collections system and develop a true collections strategy based on decisioning capabilities, analytics and models—then feed that strategy to their collection system, allowing it to better adapt to the needs of a changing reality.
A Massive “Reset”—or an Individual Approach?
Large-scale unemployment creates a collections shockwave that requires adjustments on a massive scale. For one thing, lenders have to reset the terms and conditions for practically every account in their portfolio. Or, they can try and identify groups of distressed customers who have lost their livelihood due to layoffs and closures over the last few months—then reset only those accounts. On top of that, they have to comply with complex rules created by government relief regulations which put limits on aggressive collections, foreclosures and service interruptions.
As if these things don’t pose enough of an operational challenge, lenders have to deal with the reality that every other lender, utility, landlord and supplier will be approaching the same population for back payments at the same time. Getting there fast and first may be an important factor in the overall outcome—but who you approach and how you approach them is even more important to the success of your collections efforts.
Optimising Collections Strategy for Each Account Requires Automation and Analytics
Even in good times a lender can’t be profitable with a completely manual collections approach. Although many lenders have adopted collections systems to help control the process, mitigation strategies are often still evaluated on a case-by-case basis. This still poses a particular challenge for lenders wanting to optimise their collections efforts, especially in a recessionary environment.
Often lenders focus on applying different payment terms to delinquent accounts (including deferments and extensions). However, taking advantage of advanced mitigation actions on a massive scale requires an automated decisioning engine that leverages analytics, models, and data. Some of these advanced strategies include:
Collection Contact Prioritisation – Segmenting customers into risk buckets to allow applying the most effective and efficient collections strategy for each, including automated contact via SMS, email, eVoice, or direct calls.
Collections Scoring – Leveraging behavioral data (such as bank transaction data) to determine difficult-to-collect delinquent customers which require early and aggressive activity versus those likely to self-cure with no contact at all if given the chance.
Next Best Offer Cure – Providing a prioritized list of shadow offers which collectors can use to negotiate during collections calls. These are terms and conditions customised to each specific delinquent borrower and their situation, and can include payment deferments, loan period extensions, refinancing options, debt consolidations, or even “no offer” when warranted.
Relief Program Eligibility – Proactively screening all accounts to determine those that might be eligible for government relief programs to help pay down their outstanding debt.
Settlement Strategies – Determining appropriate settlement strategies for a particular delinquent borrower, including timely recommendations for referring a case to legal or outsourcing the case to a collections agency.
Why is automating these mass assessments and actions so essential? Imagine if, for every account in your portfolio, you could automatically:
- Reset the terms and conditions with a single overnight batch
- Run decision trees, strategies and scorecards—using credit data, bank transaction data, and more—to automatically determine the best collections method for each account
- Set the best communication channel, texts, emails or phone calls to the customer including specific data on the new terms on their account
- Segment customers for outbound calls into teams for light, medium or aggressive collections treatment
- Rerun the strategy every night with the daily outcomes factored in.
- Get real-time reports on your collections operations, including the financial impact of automated actions, offers accepted, and renegotiated terms with interest, cost and fees included
Are you trying to handle today’s recession-impacted borrowers with a business-as-usual collections systems? If so, you might be underutilising your collections staff, not applying the best strategy to each account, and leaving real money on the table. By leveraging a decisioning platform with advanced models and analytics, you can pick the most appropriate collection treatment for each account, then inform your collections system to use that strategy automatically. That way, you can adeptly adjust to changing conditions—like a recession— controlling costs while improving efficiency and productivity associated with your collections efforts.
Want more tips on how lenders can recession-proof their portfolios? Contact GDS Link today to get connected with one of our Solutions Specialists: