How Other Lending Processes Can Hurt Collections Efficiency - Decisimo -
Collections efficiency is important to lending operations. It can be affected by several factors, including other processes within the lending business.
That is why teams need a broad approach to collections management.
Sales process impact on collections efficiency
The sales process plays a direct role in collections efficiency, but it can also reduce it when teams collect inaccurate or incomplete customer information. That makes it harder to reach customers during the collections process.
Teams need to collect accurate, current customer information, including a primary phone number the customer uses regularly. Incorrect or outdated information slows the collections process.
Sales team incentive schemes should also reward data quality and accuracy. They should stress the importance of collecting accurate, current customer information rather than focusing only on closed deals or sales targets.
Underwriting's role in collection efficiency
The underwriting process also has a direct effect on collections efficiency.
Verifying customer contact details during underwriting can help evaluate credit risk and prevent fraud.
Here are a few technical ways to verify customer contact details during underwriting:
- Phone verification - Underwriters may call the customer to confirm contact details, such as a phone number or email address.
- Third-party verification - Underwriters may use third-party data enrichment and verification providers to verify customer information. These providers can access large consumer databases to confirm contact details.
- One-time password (OTP) - Underwriters may send an OTP to the customer's phone or email address and ask the customer to provide it to confirm the contact information.
- Social media verification - Underwriters may use social media to verify customer contact details. For example, they may cross-check a customer's LinkedIn or Facebook profile to see whether the provided details match.
- Address verification - Underwriters may verify customer contact details by matching them with a registered address. For example, utility bills or bank statements may be used for verification.
However, collecting too much customer data may not be legal in some jurisdictions. Teams need to make sure data collection follows legal requirements.
Updating contacts in customer service
Customer service teams can also support collections efficiency by updating contact details during calls.
- Ask the customer to confirm the current phone number and email address.
- Request an alternative phone number or email address if the primary contact information stops working.
- Update the customer's address if the customer has moved.
- Add extra phone numbers or email addresses to the customer's file for redundancy.
- Ask whether the customer prefers a specific contact method or time. This can increase the chance of reaching them during the collections process.
Legal restrictions and data acquisition's effect
The choice of collection strategy should match each customer's situation.
For example, it may not be appropriate to contact a customer aggressively after a recent job loss.
Teams also need to follow legal requirements and restrictions in the collection process.
Incentive schemes and customer satisfaction's impact
Incentive schemes that prioritize sales over customer satisfaction can hurt collections efficiency. Sales representatives may collect incomplete or inaccurate customer information, which can weaken collections efforts later.
Likewise, a collections team that puts customer satisfaction ahead of debt collection may encourage late payments, which makes the process harder over time.
On the other hand, flexibility in payment plans and negotiations can improve collections efficiency by reducing customer default.
Maximizing Collections Efficiency
In summary, collections efficiency can be reduced by poorly designed incentive schemes in sales and collections, weak collection strategies, and legal restrictions.
Teams should prioritize customer satisfaction while still focusing on debt collection.
Verifying customer contact details, adapting the collections process to each customer's situation, and following legal requirements can improve collections efficiency.
Offering flexible payment plans and monitoring debt collection laws and regulations can further improve results.
Frequently asked questions
Which customer details should collections treat as essential at origination?
Make a current primary phone number the priority, then capture an email address and the customer’s preferred contact method and time. Record when the details were confirmed and how, so collections can judge whether they may be stale. Ask for alternative contact details only when there is a clear need and your legal and privacy requirements allow it.
When should we ask a borrower to confirm or update contact details?
Confirm details at origination, then refresh them during a successful servicing or collections conversation, especially when arranging a payment plan. Treat a failed call, bounced email or customer-reported move as a prompt to check the relevant details. Avoid asking for the same information on every contact. Set any routine refresh interval to fit your loan term and applicable requirements.
Which contact verification method should we use, and when is its cost justified?
Use a low-friction check for most customers, such as asking them to confirm a number during a live conversation. An OTP can confirm access to a phone or email, but may exclude customers who cannot receive it. Paid third-party checks add cost and may return outdated matches. Compare each method’s cost with the value of more usable contact details, and use stronger checks only where the decision warrants them.
How can we tell whether sales incentives are improving collections outcomes?
Test the incentive change on comparable groups of new accounts and track contact details confirmed at origination, successful customer contact and early arrears. Also monitor complaints and sales conversion, so a higher verification rate does not come at the expense of customer experience or appropriate lending. Review results by product and customer segment, since a change in the account mix can make a simple before-and-after comparison misleading.
