Evaluating and Creating Debt Collection Policies
Given the current economic situation caused by the COVID-19 pandemic, logically one can anticipate that there will be a spike in volume— both in terms of new clients interested in borrowing due to financial constraints as well as existing clients who will fall behind in loan repayments.
Some individuals and businesses who ordinarily would not have had cash-flow problems now face the prospect of missed repayments and or seeking payment holidays. Lenders will have to think deeply about whether their debt collection practices are adequate and appropriate.
Here are a few proactive steps and concepts to consider in terms of evaluating and evolving your debt collection policies:
Know Your Customers’ Credit Histories
The best way to avoid delinquent debtors is to make sure you extend credit to those who are responsible. Now more than ever, responsible lending and risk management are vital.
LoanCirrus allows lenders to set-up parameters that will score each client and loan based on their application information and relationship with the lender. Client and loan scores are crucial information when considering a loan application.
A high credit score and a relatively stable source of incoming funds make it much more likely that the borrower will pay you back on time. LoanCirrus also integrates into external credit agencies in real-time to ensure that you have all the information you need to make an informed decision.
The overall score would represent a weighted mix of these scores. It is up to each lender to find that balance between providing urgent support without putting their business at risk.
With the rapidly changing credit landscape, it is critical to set up a monitoring infrastructure to support lending decisions. To minimise the company’s downside risks, while building out capabilities that will make each lender better at managing the credit risk challenges ahead.
Communicate With Your Customers
Relationships between lenders and borrowers can vary. Some may have a hint of familiarity and personalisation that is part of their customer service. As such, many may dread making collection calls for fear of jeopardising a positive customer relationship.
However, whenever it comes to collecting your money, you should be firm yet polite with your customers— after all, your business depends on this cash. And your customers will realise and respect this.
Due to the increase of collections and delinquency volumes, lenders need to strike a balance between human interaction and artificial technologies. One such way is by coordinating the interaction with the client, as this will build client-lender loyalty and strengthen your company’s brand. Take advantage of the many automated communication tools in LoanCirrus and check out our blog post: Top 7 Must-Have Loan Collection Tools & Features.
By contacting customers as early as possible, there will likely be a wider range of available options for handling any problems that may arise before late fees and interest charges escalate. See our blog on Handling Borrowers’ Concerns during COVID-19.
Be confident when you are speaking with your customer and be prepared for their responses— whatever they may say. Keep a record of the conversation, including any agreed action, for follow-ups.
It is vital not to make clients feel threatened. They should feel the urgency, but also the benefits of settling the loan. So, try to keep the atmosphere as relaxed as you can.
Automate Your Debt Collection Process
Using a seamless and secure digital platform for your loan management and debt collection process is essential.
LoanCirrus Intelligence/Reporting systems will ensure you know exactly what is in arrears so you can be effective at debt recovery. With one standard system in place to record when credit is extended, the amount, and when the payments are due, it is hard to go wrong.
LoanCirrus allows autonomous lending so each borrower can have their identity verified faster. And, each collection/repayment is recorded. Remember, LoanCirrus enables integration into your payment gateway— so you can accept payments online as well.
Using REACH, customers can see the status of their loans— how much is owed, how much has been paid, the balance, and the date each repayment is due.
Besides, an automated debt collection process will also enable real-time communication to customers to send reminders, whether as text messages or emails.
Partner with Experts
In the wake of the COVID-19 pandemic additional federal, state, and local rules have been put in place to protect consumers faced with debt problems. Some lenders may choose to partner with a third party to carry out the debt dunning and recovery process. LoanCirrus enables lenders to add debt collectors and agencies to their system and assign loans as required. Ensure that this decision is carefully considered and follows your company’s updated debt collection policy.
Third-party debt collection agencies are knowledgeable in the laws that govern your territory. They will also have lots of experience with delinquent borrowers. Their knowledge and experience could eliminate the legal risks involved with attempting to collect difficult debts on your own. They would also have the time and resources required.
In some cases, customers who are lax in meeting their financial commitments may not acknowledge repayment letters and attempts of communication from you, the lender. But, they may be more responsive if a reputable debt collection agency contacts them. Additionally, using a debt collection agency can protect your relationship with your clients as this will distance you from the process.
Manage Your Debt Collection Policy
Creating a Debt Collection Policy is not a ‘set it and forget it’ deal. It requires an ongoing process that involves:
1) Research & Development
2) Review & Approval
4) Internal Training & Knowledge Testing
6) Exception Management
And then back to the top.
Customers will experience the impact of COVID-19 on multiple levels. However, so will lenders. Therefore, reviewing, evolving, and implementing an effective and appropriate debt collection policies will not only minimise a company’s downside risks but strengthen the lender’s brand and reputation.