12 steps to achieve excellence in debt collection and recovery
DESCRIPTION
The challenges Collection & Recovery departments face nowadays have forced them to become more inventive and efficient. The 12 steps to achieve excellence in C&R embed business knowledge that EXUS has accumulated all these years through the cooperation with field experts. Go through this presentation and evaluate how these “best practices” employed by top financial institutions in the world can be adopted by your organisation.TRANSCRIPT
Chris Maranis Business Development Manager
C&R Best Practices Step 1: Single authority / organisation
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Collection & Recovery
Best Practices
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A single collection management authority and one centralized collection organization, from the start of the collection process through to recovery or abandonment
Ensures
Consistency Accountability
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Collection & Recovery
Best Practices
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Results into
Industrialisation -> Effectiveness
Results into
Cost control
Results into
Ability to introduce quick changes
Define collection policy centrally, followed up by central collection management
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Ensures
Compliance Efficiency
Involve branch staff in relation to specific customers or product segments
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Perform regular training sessions for the network
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C&R Best Practices Step 2: Phased management, rule based progress
The right communications and actions for customers in the early delinquency stage are quite different from those required when litigation is involved
Pressure applied must be progressive
1kg
3kg
5kg 10kg
Divide management into phases
Management phases
Soft
Pre-litigation
Litigation
Recovery
Define a consistent collection approach applied by a specialised unit within the bank’s organization for each phase
During early phases, focus is on working out a solution in cooperation with the customer, giving high priority to the protection of the customer relationship. aim is to minimize the number of cases moving through to the later stages
During late phases, focus shifts from protecting the customer relationship to protecting assets and minimizing losses
moving from phase to phase must be predefined clearly stated, Not based only on DPD but factor in risk information
Allow some space for ad-hoc management but with clos monitor and control
C&R Best Practices Step 3: Dedicated collection staff
Employ and train dedicated collection staff
Clearly define and document all roles and job descriptions (from collection manager to skip tracing agent)
internal organization of the collection department directly affects its performance
Organise them for efficiency. For example: One supervisor for 15 collectors One dedicated trainer for each group of 75 to 100 collectors
C&R Best Practices Step 4: Capacity planning
People are the most expensive item in the collection centre’s budget
Estimating the number of collection staff needed to implement C&R strategies its a necessity, not a luxury.
Use regression modelling to link forecasting with capacity planning
utilize metrics like : the number of accounts to be worked, account-to-collector ratios (ACRs), seasonality, personnel shift records
C&R Best Practices Step 5: Account or Customer Level ?
Account level approach involving separate
handling of each
delinquent account, with
no view of a customer’s
other accounts with the
bank
Customer level approach taking into consideration
any other customer
accounts with the bank
The account level approach facilitates industrialization and global effectiveness.
Account level strategies are more efficient in terms of amounts collected and collector productivity
The customer level approach places more emphasis on the customer relationship
Use Account level strategies in early stages of consumer finance environments
Use Customer level in retail banking for specific products or types of customers requiring special treatment in the early phase and for the whole portfolio in post early management
Aim at offering the right offer to the right customer at the right time
C&R Best Practices Step 6: the right offer to the right customer at the right time
Segment portfolio using customer/account analytics
Use Static metrics like product type, customer
exposure, account
balance, etc
Use Behavioral metrics like Kept Promise Ratio, Non-
starter, Recidivist, time
since last max bucket,
etc
Results to decisions that Increase self cure rate Reduce costs
avoid customer irritation protect customer relationship
C&R Best Practices Step 7: Pool vs Ownership
Before the implementation of automated outbound calling technology, most collection operations assigned accounts to collectors ‘from the cradle to the grave’.
This has changed the recent years in favor of dynamically distributing accounts to a pool of resources, which provides for increased productivity
Ownership Assignments Advantages
Collectors can increasingly apply firmer collection
tactics in a logical order as accounts age, since
collectors become familiar with customers and
accounts.
Collectors become familiar with customers and their
specific situations, allowing them to be creative in
working out payment arrangement
Collectors are cross-trained in handling all
delinquency levels and most collection issues.
Disadvantages
Accounts are often segmented by billing cycle,
alphabetical order or other random group and the
number of accounts assigned to each collector may
vary widely, making it difficult to measure and
compare performance results between collectors.
When different collectors handle different
accounts each day, week or month, a variety of
tactics and techniques may be applied to attempt
the collection
Collectors may ignore customers they do not like or difficult situations.
If a collector has planned or unplanned absences, then ensuring the accounts assigned to him are worked adequately can be a challenge
A dialer cannot be used
Pool Assignments
Advantages
Accounts are intelligently segmented and
distributed.
When different collectors handle different accounts each day, week or month, a variety of tactics and techniques may be applied to attempt the collection
Collectors do not choose customers to work on
Disadvantages
Collectors do not become familiar with customers
and their specific situations, thus requiring more
time in per call to familiarize
.
Planned or unplanned absences are easily dealt with
Dialers may be used
Collectors become specialized in the specific segment to which they are assigned and become proficient at identifying solutions to bring the account up-to-date.
Pool for soft collection in retail environments
Ownership assignment for corporate accounts or hard collection and litigation management
C&R Best Practices Step 8: Multiple Contact channels
It is becoming harder to reach customers by telephone
Recovered amount = number of customers contacted
Employ multiple contact channels
Mobile banking
apps
ATMs
SMS
Web based
Collection
portals
auto dialers email
IVR
C&R Best Practices Step 9: Centrally defined collection tools & communication scripts
object of collection is to obtain an agreement to repay the overdue amount, followed by fulfilment of this agreement.
Repayment agreements can take several forms, depending on the delinquency stage. These should be defined centrally and all customer communication should comply with these guidelines
Pool for soft collection in retail environments
Ownership assignment for corporate accounts or hard collection and litigation management
a single Promise to Pay
or
a Repayment Plan
under which the overdue
amount is repaid by
fractions, with no change
to the credit contract
Soft Phase
Acceptable Promises to
Pay & Repayment Plans
have to be clearly defined in
terms of the amount to be
repaid and the delay in
repaying,
Rules must be set on
qualifying a Promise to Pay
as kept, partially kept or
broken, as well as monitoring
fulfilment of repayment plan
a repayment plan under
which the overdue amount
is repaid by fractions with a
discount with no change to
the credit contract
Or
A restructuring of the credit
contract
Pre-Litigation
Agents contacting a customer represent the bank and should be helped to convey the right message and handle customers’ arguments effectively
Scripts should be created that take account of the customer’s profile and level of delinquency and that promote the bank’s code of ethics
Simple repetition of similar messages in successive phone calls or mails is counterproductive.
A communication script should cover: Introduction
discovery phase ,
involvement phase,
incentives, and
appropriate replies
to arguments
Use of the external resource of a debt collection agency (DCA) typically results from cost/benefit analysis of this approach in comparison with carrying out the operation internally
Extreme caution when selecting: Decision should not based solely on price,
!
Extreme caution when selecting: Research market and investigate : DCA’s organizational structure,
IT systems,
Contingency plans,
Financial strength,
Customer base.
Reputation & experience
in the specific sector
Contract is #1 critical factor.
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Extreme caution when selecting: Perform due diligence should & On-site visits
DCA
Contract should cater for: description of the services and the bank products to be assigned the assignment/recall process, involvement phase, assignment files management, PTP–RTP description, the bank’s notifications and controls Fees, penalties, and conditions for audit should be agreed binding SLAs should be imposed
Manage them closely Monitor compliance with contract
Measure performance
Implement on-line collaboration
C&R Best Practices Step 11: Measure & Motivate your collectors
Collection agents are the
means through which a
collection strategy is mainly
applied
their performance must be
closely monitored
Supervisors should assess
collectors’ strengths and identify
opportunities for improvement, in
areas such as:
Technology usage
Product knowledge
Compliance with strategy
Communicational skills
Collectors need feedback about day-to-day performance
Positive feedback improves self-esteem and
personal competence
Negative feedback may drive
training activities &
behavioral changes
Define simple & appealing incentive schemes
that stress on continuous improvement, using
dynamic goals that do not allow collectors to slip
into complacency
It also helps attracting and
retaining the best collections
representatives.
Rewards may be:
Monetary: usually around 10–15% of
the monthly salary,
and not exceeding 20%, so as not to
create an atmosphere
of entitlement
Non-monetary: e.g. clothing vouchers,
parking spaces, gift certificates, dinners
out, and weekends away …
Example 1: Amount recovered / Working Hours
Example 2: VaR reduction Balance : $ 20,000, Overdue: $ 700, P(write-off) = 0.5 -> VaR = $10,000 Agent obtains PTP $ 500, Balance : $19,500, Overdue: $200, P(write-off) = 0.1 -> VaR = $1,950 Δ(VaR) = $8,050 Top 5 agents are rewarded monthly * P(write-off) estimated by combining: Bucket, Behavioral Scores, historic roll rates, …
Agents scoring >10% avg are rewarded
C&R Best Practices Step 12: Exploit the power of technology
The common ground shared by all banks that have managed to turn the credit crisis to their competitive advantage is a willingness to invest in technology.
DCA
Opt for a system that covers end to end in terms of:
DCA Time
Product Line
Location & organisation
Time: From pre-collection to early collection to the prelegal
stage, followed by legal proceedings and eventual
write-offs (and sell-offs) of portfolios, a consistent
strategy is best accommodated by a single system.
Product line: Retail products (consumer loans, car loans, housing,
credit cards) with or without collateral, small business
loans and corporate loans, factoring, leasing, and other
products should all be covered by a coherent strategy,
implemented through the use of a single system.
Location and organization: Centralized or distributed management, based on a
single system, is the approach that best serves the single
authority principle, for one company or for a group.
www.exus.co.uk
For further information please contact:
Mr. Chris Maranis
+30 210 7450300
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Collection and Recovery: Meeting the needs of a changing world
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