The COVID-19 pandemic has had a profound impact on everyday citizens’ finances, and on the collections industry in general. Layoffs and widespread economic uncertainty mean that people are struggling to pay off their debts. As a result, non-performing loans (NPLs) are on the rise.
No collections department wants loans to become non-performing. But what do they do if they’ve tried all possible tactics and still haven’t been paid back? In this event, they might decide to sell off their loan portfolio. They will at least receive some revenue from these bad debts—albeit a fraction of what the debt was really worth.
Consider the following statistics:
One thing’s for sure: loan portfolio sales will soon become commonplace. However, before financial institutions sell off their bad debts, they first need to evaluate the true value of their NPLs. It’s crucial that they have accurate data for NPLs assessment—or they could receive far less than what their portfolio is really worth.
This post will examine why NPLs are on the rise, provide 3 key steps to help financial institutions accurately assess their loan portfolio, and explain the impact that these 3 key strategies will have on their collections portfolio pricing strategies.
Beyond the pandemic alone, there are four major reasons why financial organisations are failing to recoup their debts at scale:
Generally speaking, collections departments are ignoring the following key tactics:
1. Personalising all their dunning messaging
2. Using the right channels to communicate with different customers
3. Providing instalment plans and offering self-cure digital payment options
4. Scheduling calls with customers (rather than ringing out of the blue)
By persisting with outdated strategies, like sending collections letters, collections departments are wasting far too much time and energy. Worse still, they’re receiving poor results in return.
Every past-due customer has their own context, wants, and needs—so they should be treated as individuals. Some customers might respond better to loss-aversion debt collection messagings while others may be influenced greatly by social proof.
The best collections departments ignore one-size-fits-all tactics. Instead, they provide tailored strategies to all past-due customers, helping customers take control of their debt. Unsurprisingly, this approach leads to the best results.
Knowledge is power when it comes to collections. You need to know who your customers are, what their financial situation is, and how they behave. This is where data management comes in. But when your key data is siloed across different tools under a “cobbled” system, gaining a holistic, detailed view of your customer is almost impossible.
Silos slow down the dunning process as agents are forced to waste time digging around for key information. Alternatively, agents might decide to just work off limited information if they are pressed for time. This approach is arguably even worse. They create dunning approaches based on limited information, resulting in a poor customer experience.
Claims-based approaches offer up far less transparency than account-based approaches. You see who owes you money and under which type of claim, but you have no way of knowing if the same customer also has other claims.
On the other hand, with account-based collections management (case management), you can clearly see each customers’ total claims in a single platform. If a customer has a car loan, mortgage, and credit card debt, for example, then all three claims will be displayed in a dashboard. All-in-one collections platforms with account-based collections management capabilities enable you to prioritise claims that need the most attention. They also allow you to more accurately examine and assess the true value of different portfolios.
By following these three steps, you’ll be able to properly value your collections portfolio going forward.
1. Automate your collections process
You must work with the most accurate, up-to-date information. Automation and AI provide real-time data into your past-due customers’ behaviour and repayment progress. Instead of manually using excel spreadsheets to infer results and assumptions (a process that could well be impacted by human errors), let automation instantly provide clear, comprehensive, 100% correct data at all times.
2. Leverage an all-in-one collections and recovery system
With an all-in-one collections and recovery system, you can dive into each customers’ account, devise dunning strategies, and analyse key performance data from one single place. You can properly track which tactics and strategies were used for which segment—and even drill down into each individual past-due customer. Leveraging the right software plays a pivotal role in ensuring collections success.
Having all must-know information in front of you will highlight if there is anything more that you can do for each NPL. For example, you might think that a loan is non-performing (and be ready to sell it off) until you see that you haven’t yet tried messaging the customer via Whatsapp after work hours and proposing they set up an instalment plan by leveraging a self-service platform. When you do, you realise that this is their preferred method of communication and repayment—and soon enough, the loan is no longer non-performing.
3. Apply an account-based collections management approach
Account-based approaches provide transparency into every single account. You can view each and every one of an individual debtor’s active claims, and understand which claims need to be prioritised. You also see from a single platform if they have already scheduled an instalment plan or if they have visited your repayment landing page. This allows you to better understand their account’s overall risk and value.
By leveraging automation, an all-in-one collections management system, and following an account-based management approach, you’ll gain a more comprehensive and detailed view of your loan portfolio.
This ensures that when you do sell it off, you can gain the right price and you won’t accidentally undercharge and lose more money than you need to. Likewise, it will make your portfolio more attractive to potential buyers. They’ll be able to see each debtor’s personal context and dig into crucial performance data that highlights their behaviour to date and individual preferences.
Whether you’re selling your loan portfolio or not, it always makes sense to leverage an all-in-one collections management software that harnesses automation (and to apply an account-based approach). This gives you the greatest level of detail possible into your customers: who they are, what they need, and how they behave.
It also provides a single source of truth that allows you to see the full impact of your various strategies to date. If you do decide to sell off your portfolio, you’ll have a more accurate view of each account’s true value. What’s more, having this level of insight will make your portfolio incredibly attractive to potential buyers.
To find out more about how receeve helps collections departments manage, value, and sell their loan portfolio, get in touch today.
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