By: Michael Moore
With recent changes in the economy, new consumer technology, and increased competition in the maturing consumer lending market, managing accounts receivables is becoming more of a challenge. Lenders are seeing an increase in delinquent dollars and customer attrition while there has been a decrease in new accounts and applications. This increasing trend is making it more critical that companies become innovative in their approach to collections and recovery.
The changing environment, coupled with the new business paradigm focused on total customer relationship management (customers deciding when and through which channel they will communicate) has driven financial service companies to embrace new technologies. Collections channels now include text messaging, internet self-service, email, outbound interactive VRU, traditional call centers, and direct mail.
Progressive financial service companies will take their traditional collections operations and move them towards a financial advisor model using these new technologies coupled with customer focused strategies. Lenders can be proactive leveraging better modeling to target specific accounts (high risk, early stage, and current) to work with their customers to provide treatment remedies. By establishing contact with these customers (even before delinquency grows), companies can provide advisory services to assist them through their difficult time.
The process of collections is a science and the task of putting it all together is the goal. We identify 4 key steps in this process.
Step 1: Pre-Processing: This represents the first effort in merging Servicing, Behavioral Score, and additional adjacent or peripheral data into a single view in order to manage tactical treatment of the portfolio.
Step 2: Scoring and Treatment Strategy: Risk Based Collections Strategy execution leveraging account data and empirical data to determine risk from previous approach.
Step 3: Operational Execution: Management of all collections including tracking the cost of collections for each account type. (Borrower response: Letters, Automated Messages, Self-Cure ratios, and Highest Risk Accounts) Understanding the cost to yield ratios is the beginning to better champion/challenger strategies.
Step 4: Measurement and Strategy refinement: Leveraging a repeatable process to ensure lower cost and higher yielding collections.
Improved strategy is perhaps the highest value an organization can obtain, yet it is the most difficult to quantify.