Business Loan Collections Requires the Right Approach
In good economic times, collecting loans is comparatively simple because commercial borrowers are usually ready and able to repay. However, in difficult economic times, many borrowers are unwilling, even if they are able, to repay their loans according to the repayment program. Developing a more focused debt collection strategy using vigorous software can help your organization ensure compliance, reduce costs, save time and maximize resources.
Commercial loans can fall behind or into default. When a business loan goes unpaid, it may indicate the business is in severe financial trouble and in danger of shutting its doors. Most banks find it challenging to gather such debts.
Just remember even when dealing with commercial loans there are compliance and regulations concerns. For example, Under the Fair Debt Collection Practices Act prohibits loan discussion with anyone other than the borrower.
Acknowledging Commercial Loan Debts
Lenders find it hard to acknowledge economic reality principally because it means presenting unpleasant information to borrowers that may have taken years to nurture. This might result in the loss of potential business when financial times get better.
Financial institutions want problem borrowers to be able to work out of their issues by just extending the loan’s maturity to award additional time in the hope that their circumstances will improve.
Many times loan files are over-documented and imprecise as to the existing standing of the loan. Loan files should be efficient and include documentation of actions that the financial institution and the borrower are taking to repair the problems and the timeframes for accomplishing these actions.
Problem commercial loans, depending on their score, require 30 or 90 day site visits (by the commercial loan officer). Very specific data must be gathered (fill out a form), during this visit. This data feeds reporting. Related, collection managers must review this data, and ensure the institution has a valid strategy/plan for each specific commercial account.
Bankers need to analyze the credit situation and prepare an appropriate strategy for collecting the loan.
Creating a Commercial Loan Debt Strategy
There is a growing trend of commercial lender interest to help with this new commercial problem loan reporting. Start by developing a more focused strategy by determining which accounts have the highest payment potential.
Make sure you have the right tools. Some commercial banks leverage Excel and find the Excel sheets are too large, and there is no audit tracking to the changes. They discover it is too hard to create reports.
Further increase debt recovery through ongoing portfolio monitoring. By analyzing industry trends and testing new strategies, you'll be able to better manage your accounts receivable. Developing a more focused debt strategy your organization reduces costs, save time and maximizes resources.
Our advanced scoring and segmentation tools provide lenders with the complete portfolio intelligence financial institutions need to stay ahead of the competition.