The challenge of debt collection will always remain. For example, the recent pandemic has caused a significant impact on revenue generation. Also, there are many factors you need to keep in mind. Collections departments have been bracing themselves for a ‘debt tsunami’ of people unable to meet their financial commitments for some time, all due to the combination of protected incomes, use of savings, and reduced spending on travel, luxury, and social-related discretionary expenses. Financial vulnerability will go widespread in all markets as a consequence of inflation, increased tax and interest rates, and skyrocketing energy costs. Working with clients across various sectors and geographies, financial recovery services have first-hand experience with what best practices in collections today look like.
In order to enhance these capabilities, businesses must concentrate on key pillars of capabilities.
Advanced predictive and prescriptive analytics are underpinned by harnessing and orchestrating both internal and external data.
The ability to generate data-supported insights into strategies, treatment, and customer interaction at scale
Data
Financial debt recovery agency will proactively identify the vulnerable data. However, it’s worth repeating that collection firms must deal with thousands of customers who are not in arrears for the usual reasons and without the usual market data to help identify and segment them.
Collection agencies have always been proactive when it comes to predelinquency. A professional agency will dig across the organizations to capture data and find the vital information needed to separate the economic victims from the steady-state collections customers clearly.
Open banking transactional profiling gives unparalleled insight into a consumer’s changing spending behavior, which is already recognized as key. We have come across a few collection customers who consent to share their data through open banking. Organizations need to look at securing that consent much earlier in the credit lifecycle and at the point of early warning.
Better assess affordability
Financial recovery services run a degree of assessment for those who feel a short-term collection solution. Moreover, it will suffice versus the amount of validation required for a customer seeking a long-term forbearance solution. You must dig more deeply into household balance sheets and cash flow.
Credit bureau data and other behavioral indicators will signpost trouble with current debt. Using forward-looking analytics helps detect the effect of incremental debt on default risk. A combination of criteria and approaches should be applied when evaluating whether a person is over-indebted.
Economic victim customers are quite different; we never know what causes consumers to default. Credit scores don’t tell what needs to continue to collect more data to gain a deeper understanding of the household balance sheet and investigate past financial behavior data for signs and affordability challenges.
Manage performance and regulations
The additional data in the context includes
- Reasons for hardship: Unemployed, reduced income, etc
- Type of relief applied: Payment holiday, reduced installment, what financial relief if any customer has stopped payment
- Industry sector where you can estimate the need for prolongation
Manage payment holidays ending
The key is to review as the customer debt profile changes. For example, economic downturns typically have higher financial mortality. This is likely to be uncomfortable being in debt, with a higher intent to maintain their standard of living and service their debts.
You must restructure the toolkit. You need to optimize the selection using the right tools for the right customer segment. It is more about focusing on a temporary solution that can be automatically reviewed frequently and perhaps free up creditor teams to focus phone capacity on those with the most needs.
The financial recovery services will maintain contact to understand situational change and generate monthly updates via open banking, or chatbot, helping identify any changed circumstances.
Segment customers for recovery
Segmentation is a dynamic process. You need to look at pre delinquency segmentation, payment protection, and post-payment protection segmentation, monitoring how the segments change across these categories.
The experts will provide regular insights as to what they are seeing and how these insights should influence customer treatment decisions. The process is where the phases progress. We segment not necessarily by risk but by who we let run with no need for help.
Final Wrap
Debt collection has become debt resolution. You need to find a firm that is a driver of capability change. Get connected with the experts today to make a difference.
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