Use Collection Analytics

Analytics

Analytics provides organizations with better visibility into the factors that drive revenues, costs, and shareholder value. Today’s business challenges demand timely financial information that enables executives, managers, and front-line employees to make better decisions, take action, and correct problems before they affect the company’s financial performance.

Analytics provide insight to the people who can impact business performance.

Collections + Analytics = Improved Recovery.

Collection Analytic is nothing but an intelligent analysis, using combination of mathematical and statistical tools, to arrive at a “behavioral scoring”, depicting accurate picture of the customer’s propensity and ability to pay, which is used to segment defaulters, prioritize collections activities to maximize recoveries and reduce collections costs.

Effective collection analytics empower the collection staff to focus on the right debtors, maximizing the payments collected by a combination of segmentation, scorecards, and strategies to help manage delinquent accounts better.

Collections Analytics segments and identifies accounts representing those that self-cure, those that cure with engagement, and those that will improve, remain stable, or grow more delinquent. Using Collections Analytics you can assign treatments and protocols to each of your segments depending on the account’s recovery score, outstanding balance, and balance age. This ensures collection teams are distinguishing well-intended, “accidental” debtors from those under economic hardship or potential cases of actual fraud. Strategies can be interfaces with client interaction further enhancing productivity by leveraging and optimizing investments in existing systems and providing a seamless integration to tools already being used to help collection teams.

Why collection analytic?

Because it increases amount of collection and more importantly reduces the losses by 1-2%. This translates into almost the existing profit of many well-run companies; will company not like to double its profit?

Predictive models

Predictive models analyze past performance to assess how likely a customer is to exhibit a specific behavior in the future in order to improve collection effectiveness. Many types of models are available and uniformly, all of them deduce the analysis to a scoring. A good scoring model requires varied data accurately and on timely manner.

Data is at the heart of everything.  With expertise in the interpretation and use of credit bureau, clients’ customer data and customer contact history, Analytics turns this data into information, which enables organizations to predict how defaulters will behave in the debt collections process.

Do Indian companies require them? Yes, banks and big finance companies certainly require. But, are they ready? One is not sure.

Very few banks and lenders have applications data, credit bureau data, credit scores, and collateral details electronically. Some do not have a dedicated debt management system. Migration or pulling data from one to another system creates its own set of problems.

This apart, hardly any bank or lender has captured and recorded customer contact/ interaction history systematically and digitally. Without this crucial information, no predictive model implemented will churn out any meaningful results. It would take a few years more, provided companies realize the value and importance of recording customer contact/ interaction history.

Predictive models are of no use to Indian banks and lenders, in near term.

Descriptive models

This may be appropriate for India. Descriptive models quantify relationships in data in a way that is often used to classify default customers into groups. In other pages, we have classified and grouped them under four groups/ quadrants:

I           High Delinquent        -           High Risk

II         High Delinquent         -           Low Risk

III        Low Delinquent         -           High Risk

IV        Low Delinquent         -           Low Risk

Additionally, we may use six sigma concept to further identify high risk accounts within the groups based on payment pattern falling outside six sigma (standard deviation). This would help rank-order the cases within the groups or in the collection lists.

We will discuss the level of effort, type of effort, timing of effort and the right strategy for each the above groups in future blogs.

Go Legal At The Right Time

Here, we will limit our discussion to recovery of bad loans through Indian legal system.

When follow up and negotiation fail, the only option is to go through judicial process. Many fraudsters ( sometimes on the advice of their legal counsel) refuse to settle through negotiation as they are aware that the last option left to lenders is to go legal, and which takes ages in India.

All of us know that Indian courts are overloaded with very high number of cases; obviously it is going to take time to see the light at the end of tunnel. Delay is not all because of inefficiency of courts or judges alone. In about 80% of cases, delay is attributed to late start, improper preparedness, attitude and quality of legal counsel.

Many companies do not have legal department or lack a legal professional in the department. As mentioned elsewhere, top guys do not have skills and/ or attitude for debt collection or do not believe in recovery through legal recourse. They have a preconceived notion that it takes a long time and they are not sure whether they would remain at the top that long. They rather believe Keynes who said, ‘everybody is dead in the long run’. The Board and promoters need to be focused; recovery could be a good profit centre.  Besides, lenders need to enjoy a good reputation in the area of operation that bad debtors will be haunted.

Management many a time argue that they cannot put good money after bad money; it shows their attitude.

Much of litigation is started by lenders very late, in most cases to cover them. They cite very delay in the courts as the reason. Appropriate litigation must start immediately after an account is ‘charged off’ and moved to ‘losses’, which is normally after 180 days past due in case of many well run finance companies and it is beyond 720 days past due in many companies in India. It is the delay in charging off by many companies that makes highly improbable to collect through legal proceedings. Law of limitations apply.

Of course, there must be a prudence used as to whether one should resort to legal recourse in each case; however, review and decisions cannot be unduly delayed. Where is the customer contact/ interaction history for a meaningful review?

In almost all cases, history of contacts and other important papers are not found in the customer file. For example, a motor vehicle is repossessed and sold by a lender, he needs to let customer know at each stage of the sale process (as his equity is involved) and produce enough evidences to that effect to the courts that the vehicle was sold through a good process by which the best value of the vehicle was realised. In cases, where such papers are not found, manger responsible removes the account from the probable list or achieves to lose the file in full.

It is sad that legal counsel in India, irrespective of quality or experience, just wants more and more legal cases from the company. He is willing to under quote and resort to wrong means, just to get accounts.

Obviously, he is more interested in upfront advance payment; he has neither infrastructure nor intention to start proceedings early and move fast. There is a huge delay here. They keep blaming lenders for not providing information or the right papers; why should they accept such incomplete files? Many legal firms have put enough hardware and software to use, more to print their bills. It would be in the interest of both t to speed up complaints and proceedings. Sadly, most of the times, it is the plaintiff counsel who seeks postponement or vaaidha in courts. I do not blame here the total legal community, but more than a few.

Lenders need to start legal proceedings in appropriate cases through professional counsel who may charge high but deliver results, and quickly.

Currently, not all debtors are having the last laugh!