discussed various debt collection challenges currently facing
lenders. Many interesting issues were raised and it is true that,
although historically many lenders have been highly sophisticated
in marketing, acquisition and customer relationship management,
they haven’t been as strategic in their approach to collections and
the management of customers who are behind on their repayment
schedule.
Indeed, up until now, the collections process has
often been seen as an operational rather than a strategic function.
However, poor collections strategies and processes can no longer be
camouflaged by increases in new business. The focus is well and
truly on customer rehabilitation and debt management, spotting and
solving potential problems at the pre-delinquent stage, retrieving
delinquent loans and making cash recoveries.
In the current climate, the collections process has
moved from a cost centre to a front-line profit driver, and
organisations need to prioritise, manage and collect outstanding
monies efficiently and effectively at pre-delinquent, delinquent
and recoveries stages.
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Many companies think they already have good
collections systems in place in their loan management systems. Yet
on closer examination, the majority of these systems have only a
very basic, inflexible collections function.
More than ever, motor finance businesses now need
to put customers at the heart of their debt collection operations.
To do this they need to combine their full range of internal data
sources with real-time credit reference bureau data, risk and
collection scores to build a comprehensive view of each customer’s
overall credit commitments and their ability to pay.
Know customers though data, insight
and tracing
First of all, a deep cleanse of
information held on customers in arrears needs to take place.
Update addresses and contact details and then use internal and
external data to build up a wider picture of the financial
circumstances of debtors. Identify bankrupts and individual
voluntary arrangements. Details such as home ownership and
employment situation add additional insight.
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By GlobalDataUnderstand your customers through
analytics and data intelligence
You need to be able to assess whether you
will be able to collect the debt – and if the costs of collecting
the money might be greater than the amount recovered. The data
collected when getting to know your customers can be increased and
used to understand and predict a customer’s willingness to pay
versus their ability to pay.
Portfolio monitoring and alert services can be used
to identify changes in the credit status of existing customers,
providing organisations with an updated risk assessment.
Organisations are able to immediately flag at-risk customers and
act quickly to prevent loss before they are exposed.
Target your customers through
segmentation and scoring
Segmenting customers into categories of
debt – and adopting different approaches for each group – is an
effective strategy for debt collection. We know that organisations
aren’t averse to segmentation; most use some level of personal
information to risk-assess new and existing customers.
Customers can then be given a behavioural score to
predict how the account will perform over a specified period. This
score is then used to assign collections priority and drive the
most appropriate strategy for each individual customer.
For example, an organisation could broadly segment
customers in arrears into one of three main categories: lazy
payers, over-indebted and those having a major life trauma. Each
category would have separate tailored strategies which are
regularly tested over time by ‘champion challenger’ techniques.
Interact with your customers using
automated workflow and case management
By segmenting customers, organisations
can apply a set of recovery and rehabilitation processes that are
specifically matched to unique customer profiles.
Many of these standard procedures and processes can
be automated, thus taking more pressure off customer service
representatives and enabling them to spend their time productively
on the most complex cases. Make sure that 2009 is the year that
your organisation reviews its collections strategy.
The author is director of marketing
for Experian’s Tallyman debt management and collection
system
