Strategy is a plan; Strategy is a pattern in actions over time; Strategy is a position; and Strategy is perspective, that is, vision and direction.
Strategy bridges the gap between policy and tactics.
Effective collection Strategy should have a comprehensive approach which encompasses:
Automating work flows: Automation of work flows through dedicated collection system would help classify, allocate, prioritize, and assign accounts and maintain flexibility to respond to changing circumstances. This is estimated to reduce delinquency by 1-2%.
Monitoring Resource Performance: Measurement of efficiency and effectiveness of collectors, supervisors, business unit is very important. Dash board approach is good; system should provide on-line performance to all stakeholders, continuously and consistently. System based and systematic monitoring for course correction is estimated to reduce delinquency by 1% and reduce collection costs by 4-5%.
Improving performance of Debt Collection Agency (DCA): It is important to get better results and accountability from DCA handing delinquent and recovery cases. Letting DCAs to use collection system on web and seeking accurate and daily contact and collection details help improve recovery and achieve high liquidation rate. Alternatively, it helps shifting of the cases to more effective agencies.
Reporting to Credit Bureau: Lenders will have to supply accurate delinquency data on each default customer to Credit Bureau. This brings discipline in few customers and results in payment in full ; and ensures future payments on time.
Capturing contact details digitally: It appears very easy; but it is the most difficult activity in the Debt Life cycle. There are a lot of constraints and resistance to get contact details recorded systematically and daily. Some field collectors have retained most information on delinquent customers in their diaries and the notes go with them when they leave. Currently, contact history is very important to grade delinquent accounts systematically for different actioning.
Let us discuss tactics for each of the following category.
I
High Delinquent – High Risk
( DPD > 89 & Delinquency rate > 66% )
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II
Low Delinquent – High Risk
( DPD < 90 & Delinquency rate > 66% )
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III
High Delinquent – Low Risk
( DPD > 89 & Delinquency rate < 67%)
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IV
Low Delinquent – Low Risk
( DPD < 90 & Delinquency rate < 67% )
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Strategy for Quadrant IV – LDLR
These accounts may be allotted to desk collection; desk collection is responsible for tele-calling and written communication.
Soft collection letter may be sent after each cheque bounce or a missed payment. Each letter must positively bring focus on possible loss of credit rating with credit bureau, pointing out the benefit of saving penalty, late payment charges/ fees, etc. apart. 80% of default accounts with DPD less than 31 will be cured with a simple letter. This includes self cure. (We will discuss the content and tone of different collection letters in future blogs).
Calling may be scheduled for accounts with DPD exceeding 30. A tele-caller can effectively and must call 50-60 accounts a day including ‘pop-up’ and ‘Promise-To-Pay’ cases. They may cure a minimum 70% of allotted cases; accordingly resources may be planned and provided for. The resources must be well trained to be effective to collect, but still relate. Being low delinquent, relationship with these customers are important and may be handled in a way relationship is not affected at all.
Strategy for Quadrant II – LDHR
These accounts will have to be allocated to field collection. These accounts should not be allotted to DCAs for collection, as highly reliable details on these customers are required for quick ‘grading’. Collectors must meet these customers and record accurate contact details focusing on “Ability and/or Intention to pay”.
Collection tactic for each of the following metric is as follows:
High Ability – High Intention
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Low Ability – High Intention
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High Ability – Low Intention
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Low Ability – Low Intention
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High Ability – High Intentio : collect money
Low Ability – High Intention : seek and get surrender of the asset
High Ability – Low Intention : repossess the asset
Low Ability – Low Intention : charge off and/or sell the account
Strategy for Quadrant III – HDLR
These accounts may be considered for allocation to Debt Collection Agency (who is a good DCA?). Alternatively, it may be allocated to field collectors. Most likely, many accounts here will be high on intention and low on ability. Economics of these customers may have started deteriorating in the recent past. Collection should be possible and seeking the surrender of asset may be considered as next option. The interface with this customer will have to still be customer centric and communication both ways need to be managed better.
Strategy for Quadrant I – HDHR
These accounts are very Low on intentions. These must be allocated to the most experienced field collectors or collection supervisors. Best way to realize any collection from these accounts is by repossession and sale of asset. It is advised not to repossess assets which are in non-saleable condition.
Losses can be only minimized if the sale of repossessed asset is done urgently and through robust process. Many a time, the process is subject to judicial review, when suit is filed for recovery. So, it is advisable to keep the record of the process and documents in customer files without fail.
In many cases, there would be difficulty in repossessing the assets. In such cases where the ability is high, legal proceedings must start immediately without wasting any time.
