12 steps to achieve excellence in debt collection and recovery

Chris Maranis Business Development Manager

C&R Best Practices Step 1: Single authority / organisation

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A single collection management authority and one centralized collection organization, from the start of the collection process through to recovery or abandonment

Ensures

Consistency Accountability

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Results into

Industrialisation -> Effectiveness

Results into

Cost control

Results into

Ability to introduce quick changes

Define collection policy centrally, followed up by central collection management

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Ensures

Compliance Efficiency

Involve branch staff in relation to specific customers or product segments

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Perform regular training sessions for the network

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C&R Best Practices Step 2: Phased management, rule based progress

The right communications and actions for customers in the early delinquency stage are quite different from those required when litigation is involved

Pressure applied must be progressive

1kg

3kg

5kg 10kg

Divide management into phases

Management phases

Soft

Pre-litigation

Litigation

Recovery

Define a consistent collection approach applied by a specialised unit within the bank’s organization for each phase

During early phases, focus is on working out a solution in cooperation with the customer, giving high priority to the protection of the customer relationship. aim is to minimize the number of cases moving through to the later stages

During late phases, focus shifts from protecting the customer relationship to protecting assets and minimizing losses

moving from phase to phase must be predefined clearly stated, Not based only on DPD but factor in risk information

Allow some space for ad-hoc management but with clos monitor and control

C&R Best Practices Step 3: Dedicated collection staff

Employ and train dedicated collection staff

Clearly define and document all roles and job descriptions (from collection manager to skip tracing agent)

internal organization of the collection department directly affects its performance

Organise them for efficiency. For example: One supervisor for 15 collectors One dedicated trainer for each group of 75 to 100 collectors

C&R Best Practices Step 4: Capacity planning

People are the most expensive item in the collection centre’s budget

Estimating the number of collection staff needed to implement C&R strategies its a necessity, not a luxury.

Use regression modelling to link forecasting with capacity planning

utilize metrics like : the number of accounts to be worked, account-to-collector ratios (ACRs), seasonality, personnel shift records

C&R Best Practices Step 5: Account or Customer Level ?

Account level approach involving separate

handling of each

delinquent account, with

no view of a customer’s

other accounts with the

bank

Customer level approach taking into consideration

any other customer

accounts with the bank

The account level approach facilitates industrialization and global effectiveness.

Account level strategies are more efficient in terms of amounts collected and collector productivity

The customer level approach places more emphasis on the customer relationship

Use Account level strategies in early stages of consumer finance environments

Use Customer level in retail banking for specific products or types of customers requiring special treatment in the early phase and for the whole portfolio in post early management

Aim at offering the right offer to the right customer at the right time

C&R Best Practices Step 6: the right offer to the right customer at the right time

Segment portfolio using customer/account analytics

Use Static metrics like product type, customer

exposure, account

balance, etc

Use Behavioral metrics like Kept Promise Ratio, Non-

starter, Recidivist, time

since last max bucket,

etc

Results to decisions that Increase self cure rate Reduce costs

avoid customer irritation protect customer relationship

C&R Best Practices Step 7: Pool vs Ownership

Before the implementation of automated outbound calling technology, most collection operations assigned accounts to collectors ‘from the cradle to the grave’.

This has changed the recent years in favor of dynamically distributing accounts to a pool of resources, which provides for increased productivity

Ownership Assignments Advantages

Collectors can increasingly apply firmer collection

tactics in a logical order as accounts age, since

collectors become familiar with customers and

accounts.

Collectors become familiar with customers and their

specific situations, allowing them to be creative in

working out payment arrangement

Collectors are cross-trained in handling all

delinquency levels and most collection issues.

Disadvantages

Accounts are often segmented by billing cycle,

alphabetical order or other random group and the

number of accounts assigned to each collector may

vary widely, making it difficult to measure and

compare performance results between collectors.

When different collectors handle different

accounts each day, week or month, a variety of

tactics and techniques may be applied to attempt

the collection

Collectors may ignore customers they do not like or difficult situations.

If a collector has planned or unplanned absences, then ensuring the accounts assigned to him are worked adequately can be a challenge

A dialer cannot be used

Pool Assignments

Advantages

Accounts are intelligently segmented and

distributed.

When different collectors handle different accounts each day, week or month, a variety of tactics and techniques may be applied to attempt the collection

Collectors do not choose customers to work on

Disadvantages

Collectors do not become familiar with customers

and their specific situations, thus requiring more

time in per call to familiarize

.

Planned or unplanned absences are easily dealt with

Dialers may be used

Collectors become specialized in the specific segment to which they are assigned and become proficient at identifying solutions to bring the account up-to-date.

Pool for soft collection in retail environments

Ownership assignment for corporate accounts or hard collection and litigation management

C&R Best Practices Step 8: Multiple Contact channels

It is becoming harder to reach customers by telephone

Recovered amount = number of customers contacted

Employ multiple contact channels

Mobile banking

apps

ATMs

SMS

Web based

Collection

portals

auto dialers email

IVR

C&R Best Practices Step 9: Centrally defined collection tools & communication scripts

object of collection is to obtain an agreement to repay the overdue amount, followed by fulfilment of this agreement.

Repayment agreements can take several forms, depending on the delinquency stage. These should be defined centrally and all customer communication should comply with these guidelines

Pool for soft collection in retail environments

Ownership assignment for corporate accounts or hard collection and litigation management

a single Promise to Pay

or

a Repayment Plan

under which the overdue

amount is repaid by

fractions, with no change

to the credit contract

Soft Phase

Acceptable Promises to

Pay & Repayment Plans

have to be clearly defined in

terms of the amount to be

repaid and the delay in

repaying,

Rules must be set on

qualifying a Promise to Pay

as kept, partially kept or

broken, as well as monitoring

fulfilment of repayment plan

a repayment plan under

which the overdue amount

is repaid by fractions with a

discount with no change to

the credit contract

Or

A restructuring of the credit

contract

Pre-Litigation

Agents contacting a customer represent the bank and should be helped to convey the right message and handle customers’ arguments effectively

Scripts should be created that take account of the customer’s profile and level of delinquency and that promote the bank’s code of ethics

Simple repetition of similar messages in successive phone calls or mails is counterproductive.

A communication script should cover: Introduction

discovery phase ,

involvement phase,

incentives, and

appropriate replies

to arguments

Use of the external resource of a debt collection agency (DCA) typically results from cost/benefit analysis of this approach in comparison with carrying out the operation internally

Extreme caution when selecting: Decision should not based solely on price,

!

Extreme caution when selecting: Research market and investigate : DCA’s organizational structure,

IT systems,

Contingency plans,

Financial strength,

Customer base.

Reputation & experience

in the specific sector

Contract is #1 critical factor.

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2 3

Extreme caution when selecting: Perform due diligence should & On-site visits

DCA

Contract should cater for: description of the services and the bank products to be assigned the assignment/recall process, involvement phase, assignment files management, PTP–RTP description, the bank’s notifications and controls Fees, penalties, and conditions for audit should be agreed binding SLAs should be imposed

Manage them closely Monitor compliance with contract

Measure performance

Implement on-line collaboration

C&R Best Practices Step 11: Measure & Motivate your collectors

Collection agents are the

means through which a

collection strategy is mainly

applied

their performance must be

closely monitored

Supervisors should assess

collectors’ strengths and identify

opportunities for improvement, in

areas such as:

Technology usage

Product knowledge

Compliance with strategy

Communicational skills

Collectors need feedback about day-to-day performance

Positive feedback improves self-esteem and

personal competence

Negative feedback may drive

training activities &

behavioral changes

Define simple & appealing incentive schemes

that stress on continuous improvement, using

dynamic goals that do not allow collectors to slip

into complacency

It also helps attracting and

retaining the best collections

representatives.

Rewards may be:

Monetary: usually around 10–15% of

the monthly salary,

and not exceeding 20%, so as not to

create an atmosphere

of entitlement

Non-monetary: e.g. clothing vouchers,

parking spaces, gift certificates, dinners

out, and weekends away …

Example 1: Amount recovered / Working Hours

Example 2: VaR reduction Balance : $ 20,000, Overdue: $ 700, P(write-off) = 0.5 -> VaR = $10,000 Agent obtains PTP $ 500, Balance : $19,500, Overdue: $200, P(write-off) = 0.1 -> VaR = $1,950 Δ(VaR) = $8,050 Top 5 agents are rewarded monthly * P(write-off) estimated by combining: Bucket, Behavioral Scores, historic roll rates, …

Agents scoring >10% avg are rewarded

C&R Best Practices Step 12: Exploit the power of technology

The common ground shared by all banks that have managed to turn the credit crisis to their competitive advantage is a willingness to invest in technology.

DCA

Opt for a system that covers end to end in terms of:

DCA Time

Product Line

Location & organisation

Time: From pre-collection to early collection to the prelegal

stage, followed by legal proceedings and eventual

write-offs (and sell-offs) of portfolios, a consistent

strategy is best accommodated by a single system.

Product line: Retail products (consumer loans, car loans, housing,

credit cards) with or without collateral, small business

loans and corporate loans, factoring, leasing, and other

products should all be covered by a coherent strategy,

implemented through the use of a single system.

Location and organization: Centralized or distributed management, based on a

single system, is the approach that best serves the single

authority principle, for one company or for a group.

www.exus.co.uk

For further information please contact:

Mr. Chris Maranis

+30 210 7450300

chmar@exus.co.uk

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Collection and Recovery: Meeting the needs of a changing world

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