This debt collection strategies resource outlines actions and processes that enable banks and credit unions to maximize debt collection effectiveness.
These debt collection techniques can enable your financial institution to reduce expenses and increase revenue without adding employees or costly in-house infrastructure or equipment.
How Debt Collection Practices are Changing
Debt collection accuracy, efficiency and compliance are the keys to staying competitive in today’s economy. Bankers need advanced tools to quickly adapt to ever-changing legal and regulatory requirements; monitor consumer credit behavior; and enforce new policies and procedures.
Outdated manual account-monitoring systems in banks and credit unions lack contemporary, dynamic, real-time efficiencies. Financial institutions need vital access to technology that can handle increased volume, manage risk, and boost the productivity of their collections staff.
CARM-Pro™ Collection and Recovery Manager – Professional by IBS is the comprehensive and contemporary debt collection management software trusted by hundreds of banks and credit unions throughout the U.S.
As banks and credit unions employ modern debt collection strategies, CARM-Pro™ technology enforces these strategies and automates routine collector actions to ease workflow and maximize efficiency. CARM-Pro™ enables collectors to work more accounts with fewer client touches. It uses dynamic workflows to automate tasks, expand debtor outreach methods, and ensure compliant, ethical collection actions. This retains more customers and generates higher loan-recovery revenue from only the efforts of existing staff members.
More Robust Collections Strategies for a COVID-19 Economy
In 2020, the COVID-19 pandemic affected virtually all segments of the economy. Banks and credit unions braced for a new collections lifecycle trending toward more frequent instances of bankruptcy, foreclosure, repossession, and other actions resulting from bad debt.
Many banks and credit unions experienced a temporary increase in origination fee loan revenue due to government programs for businesses such as the Paycheck Protection Program (PPP). As this increase in revenue exceeded forecasted budgets, wise bankers began using it to pre-fund their Allowance for Loan and Lease Losses (ALLL) allocations in anticipation of the growing volume of delinquencies and charged off debt.
Financial institutions that previously relied on the collections module of their core banking system during a booming economy are finding that it no longer serves them well in a recession economy. CARM-Pro™ Collection and Recovery Manager – Professional by IBS is a robust bank debt collection management system. It seamlessly integrates with all core banking systems and supports today’s contemporary bank and credit union loan recovery strategies.
7 New Debt Collection Strategies for Banks and Credit Unions for 2021
Partner with an Experienced Debt Collection System Vendor
How can you determine the best debt collection technology vendor for your financial institution?
Experience is a key part of the solution that will help you proactively promote products for debt recovery and effectively implement your debt revenue recovery strategies.
What To Expect from Your Loan Recovery Management Technology Provider
The best debt collection technology vendor will partner with you to:
- ASK the right questions, to understand your bank or credit union’s loan recovery strategies
- CONFIGURE a debt collection system with tools and efficiencies that fit your brand personality
- TEACH your collections staff how to easily modify the technology as your strategies change
- SUPPORT your staff with collaborative & responsive U.S.-based support, service and training
The most comprehensive solution is CARM-Pro™ Collection and Recovery Manager – Professional on-premise or cloud based debt collection management software. Across the U.S., CARM-Pro™ is trusted by bank and credit union debt collection professionals as the most dynamic and scalable debt collection software system available today.
CARM-Pro™ is built, sold, and supported exclusively by the experienced team at privately-owned Intelligent Banking Solutions, led by IBS President Rob Daley. The quality management team of IBS professionals are dedicated to supporting each customer’s loan recovery strategy with this single-focus banking software solution.
Develop Customer Focused Communications
Consistent communication is vital to preserving relationships with bank customers and credit union members. A strong customer-focus can increase each customer’s loyalty and lifetime value to a financial institution throughout all economic conditions.
Proactive approaches include conveying clear expectations; using each customer’s preferred communication method; and simplifying the payment process. These simple but important steps can vastly increase loan repayment rates and retain customers.
Adopt the Preferred Communication Method of Each Debtor
Modern debt-gathering strategies must include multiple communication channels and easy methods for each customer to openly discuss their issues or questions. Proactive communication enables early detection of potential debt repayment problems, to prevent larger issues in the future.
Communication methods may include:
- Electronic mail (email)
- Text (SMS)
- U.S. Post Office Mail (USPS)
- Voicemail messaging (VM)
- Traditional voice to voice phone calls (V2V)
Each customer outreach method, or “touch”, should include encourage borrower accountability and provide a clear path to direct and immediate payment.
CARM-Pro™ Collection and Recovery Manager – Professional by IBS supports all types of debtor communications. For example, a bank or credit union can define which communication method (phone call, voice message, letter, email, text) goes to which group of debtors. CARM-Pro’s full automation then performs and documents these communications – without the compliance risk and delays that stem from error-prone human interaction and tracking.
Simplify the Payment Process for Past-due Debtors
To make it easy for customers to pay, all debtor communication methods should:
- Ensure that contact data is updated on invoices, and offer all standard payment options
- Include an easy way for a debtor to pay your financial institution at any time of day or night
- Accept on-us payments, whereby a debtor can use a deposit account to pay a loan account from the same bank, credit union, or funding resource
- Allow non on-us payment (also known as foreign transaction payment), whereby a debtor can use a deposit account from another bank, credit union or funding resource to pay a loan account
- Be backed by a payment processing engine that applies both the funding and loan payments simultaneously, to automatically arrive in the same file and post directly to the loan account without risk of delay or misapplication due to human interaction.
For example, CARM-Pro™ Collection and Recovery Manager – Professional is proven collections software that seamlessly enables multiple payment functions in real time. Robust automation ensures consistent compliance and frees up collection agents to pursue more revenue-generating collection actions.
Communicate Clear Expectations Throughout the Collections Lifecycle
Debt recovery is an information intense process. A friendly approach to communicating clear expectations throughout the loan lifecycle can enhance customer satisfaction, loyalty, and retention.
Agents should clearly convey their expectations of borrowers. Some banks and credit unions offer programs that restore negative accounts for clients instead of closing or charging them off. Research suggests that these programs maintain customer retention upwards of 70 percent.
Use Contact Data to Make Intelligent Collection Decisions
Contact data refers to everything a collecting agency (i.e., your collections team) knows about customers as borrowers. These data records include all collateral property and assets; risk factors such as loan to mortgage value; total relationships and risk scores from debtor leading to the risk to the bank or credit union.
In addition to identity data, bankers can use contact data to prioritize collection activities for collector workflows. This data includes the total of all deposits, all loans outstanding, the loan to value, and any other accounts for which the financial institution can exercise its right of offset to cover delinquent loans.
A data-driven strategy allows for proactive, accurate, real-time collector activities that enable quality management of accounts and quickly resolve delinquencies.
CARM-Pro™ Collection and Recovery Manager – Professional by IBS has unlimited capability and capacity to maintain accurate collections data for institutions of all sizes.
CARM-Pro™ also supports skip tracing by accessing and integrating current contact details for each customer into automated collector workflows that enable constant communication.
Document Every Debt Collection Action
In addition to including accurate identity data on loan repayments, it is equally important to document and maintain comprehensive records of each invoice, payment, and collection action.
Emerging challenges that stem from past due/delinquent accounts include bankruptcy, foreclosure, repossession, and other litigation. Robust CARM-Pro™ software provides clear, clean, chronological documentation throughout the loan lifecycle, to simplify and streamline the asset recovery process.
Improve Regulatory Compliance Through Automation
CARM-Pro™ Collection and Recovery Manager – Professional by IBS is an industry-leading tool that automates key manual tasks of the collection process, to ensure consistent compliance through timely distribution and accurate documentation.
Simply configure your collection action parameters into CARM-Pro™ (customer risk value, payment path, communication preferences, etc.) CARM-Pro™ will develop workflows that provide a complete view of all account details and automate critical steps such as collector notes, communications and reports.
Apply Dynamic Decision Strategies for Debt Collection
Before pursuing any debt recovery strategy, bankers must consider the overall cost of debt collection versus actually recoverable income.
A few key account decisions can help bank and credit union collection management teams to prioritize which outstanding loans to pursue, and the best collection strategies to employ.
Consumer credit behavior is important information used to develop effective collection strategies. Banks and credit unions monitor changes in credit scores and consumer behavior. These consumer insights often influence the collection strategy for each account and the collection actions in a collector’s workflow.
Factors that Influence Collection Strategy Decisions
Current Balance on Delinquent Accounts
When the current loan balance falls below a predetermined threshold, bankers may decide not to put it into the collections queue. Instead, it may be more efficient and cost-effective to outsource the delinquent account to a third-party collection agency and earn a portion of the recovered debt.
Consumer Insights such as Debtor Credit Score
Historically, bankers reviewed borrower credit scores at loan origination to evaluate and establish risk. A modern collection strategy is to analyze the difference between a debtor’s current credit score versus the previous score (when the loan was written). Depending on the degree of change, the collector can decide the best collection strategy.
Collection-Specific Risk Score Versus Loan Origination Risk Score
In many cases, the banking industry has shifted to using collection-specific risk scores instead of loan origination risk scores. This represents a more sophisticated decisioning tool used to determine debt collection techniques.
For example, CARM-Pro™ Collection and Asset Recovery Manager – Professional by IBS interfaces seamlessly with Lexis Nexis to obtain collection risk scores. For just pennies per account, borrowers are risk-scored annually (or more frequently, if desired). Risk scores are valuable data points for bankers, as they enable banks and credit unions to gauge the extent of collection probability when accounts become delinquent.
Consolidate Account Management
Traditionally, all account records for business or personal customers were with one bank or credit union. Those days are gone. Modern businesses and non-business borrowers take advantage of easy access to multiple deposit and loan accounts from several lending resources.
While beneficial for borrowers, this multiple-resource access often impedes collection efforts when a bank or credit union does not implement a system to consolidate the management of all borrower accounts.
CARM-Pro™ Collection and Recovery Manager – Professional provides bankers with a comprehensive 360- degree view of all borrower accounts and debt relationships. CARM-Pro™ integrates with any financial institution’s core banking system. It consolidates customer account information from multiple servicing platforms into a single comprehensive collection solution. The CARM-Pro™ summary view provides banking professionals with a complete overview of each debtor’s profile and account history.
In addition to consolidating all loan accounts into one system, CARM-Pro™ also monitors all types and stages of debt, such as past due delinquencies, bankruptcy, foreclosures, repossessions and other real estate owned (OREO), and charged off debts.
Collectors maintain productivity by never needing to toggle outside of CARM-Pro™ to reference debtor account details in the core servicing system. These key features save time and support compliance.
Centralize Account Allocation
When collectors are assigned multiple responsibilities, workflows lack focus and collection results suffer. Centralized account allocation, coupled with automation of tedious manual tasks, enable collectors to re-focus their efforts on more productive tasks.
Learn Each Debtor’s Payment Behavior
Contemporary technology such as CARM-Pro™ automatically monitors and tracks changes in consumer behavior. Collectors gain tools to implement dynamic collection strategies using real time data to maximize collections effectiveness.
For example, if a borrower is historically known to remit payment on day 19, there is no need to take action until day 20 – when his or her behavior changes. Conversely, if a debtor is regularly delinquent (past their grace period) but always includes a late fee with payment, this debtor generates profit – no action is needed. This strategy helps to focus collector actions on the most productive revenue-increasing activities.
Learn the reasons for payment delinquency – and what motivates debtors to pay – to help clients keep their accounts current. Offer alternative payment options to people experiencing financial difficulties.
Identify Debt Revenue Recovery Resources
Once a home is foreclosed or an auto is repossessed and sold, the collateral behind the loan is gone. At this point a bank or credit union has earned whatever it could get from the collateral sale. To continue collecting payment of the remaining balance due on the loan, bankers traditionally engaged a specialty firm to recover charged-off debt. This was often because financial institutions did not have the in-house capability or capacity to pursue charged off accounts.
Among the most effective recovery tools available, ARM-Pro™ Asset Recovery Manager – Professional by IBS is powerful asset recovery software that’s built into the CARM-Pro™ System. Throughout the collections lifecycle, CARM-Pro™ tools represent robust debt revenue recovery resources that enable banks and credit unions to conduct comprehensive debt collection and recovery.
For example, built-in efficiencies such as streamlined workflows and automated collection actions within CARM-Pro’s collections management system (CMS) greatly increase collector-productivity. This resource enables collections staff to pursue more debt in less time, which increases their availability to pursue charged off accounts using ARM-Pro™.
From initial delinquency through charged off debt, CARM-Pro™ Collections and Asset Recovery Manager – Professional web-based cloud collection management software is proven to support bank and credit union debt collection strategies.