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12 steps to achieve excellence in debt collection and recovery

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The challenges Collection & Recovery departments face nowadays have forced them to become more inventive and efficient.
The 12 steps to achieve excellence in C&R embed business knowledge that EXUS has accumulated all these years through the cooperation with field experts.
Go through this presentation and evaluate how these “best practices” employed by top financial institutions in the world can be adopted by your organisation.

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12 steps to achieve excellence in debt collection and recovery

  1. 1. Chris Maranis Business Development Manager
  2. 2. C&R Best Practices Step 1: Single authority / organisation
  3. 3. A single collection management authority and one centralized collection organization, from the start of the collection process through to recovery or abandonment 29/11 Collection & Recovery 3
  4. 4. Ensures Consistency 29/11 Collection & Recovery Accountability 4
  5. 5. Results into Industrialisation -> Effectiveness
  6. 6. Results into Cost control
  7. 7. Results into Ability to introduce quick changes
  8. 8. Define collection policy centrally, followed up by central collection management 8
  9. 9. Ensures Compliance Efficiency
  10. 10. Involve branch staff in relation to specific customers or product segments 10
  11. 11. Perform regular training sessions for the network 11
  12. 12. C&R Best Practices Step 2: Phased management, rule based progress
  13. 13. The right communications and actions for customers in the early delinquency stage are quite different from those required when litigation is involved
  14. 14. Pressure applied must be progressive 5kg 3kg 1kg 10kg
  15. 15. Divide management into phases
  16. 16. Management phases Soft Pre-litigation Litigation Recovery
  17. 17. Define a consistent collection approach applied by a specialised unit within the bank’s organization for each phase
  18. 18. 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
  19. 19. During late phases, focus shifts from protecting the customer relationship to protecting assets and minimizing losses
  20. 20. moving from phase to phase must be predefined clearly stated, Not based only on DPD but factor in risk information
  21. 21. Allow some space for ad-hoc management but with clos monitor and control
  22. 22. C&R Best Practices Step 3: Dedicated collection staff
  23. 23. Employ and train dedicated collection staff
  24. 24. Clearly define and document all roles and job descriptions (from collection manager to skip tracing agent)
  25. 25. internal organization of the collection department directly affects its performance
  26. 26. Organise them for efficiency. For example: One supervisor for 15 collectors One dedicated trainer for each group of 75 to 100 collectors
  27. 27. C&R Best Practices Step 4: Capacity planning
  28. 28. People are the most expensive item in the collection centre’s budget
  29. 29. Estimating the number of collection staff needed to implement C&R strategies its a necessity, not a luxury.
  30. 30. Use regression modelling to link forecasting with capacity planning
  31. 31. utilize metrics like : the number of accounts to be worked, account-to-collector ratios (ACRs), seasonality, personnel shift records
  32. 32. C&R Best Practices Step 5: Account or Customer Level ?
  33. 33. Account level approach Customer level approach involving separate handling of each delinquent account, with no view of a customer’s other accounts with the bank taking into consideration any other customer accounts with the bank
  34. 34. The account level approach facilitates industrialization and global effectiveness.
  35. 35. Account level strategies are more efficient in terms of amounts collected and collector productivity
  36. 36. The customer level approach places more emphasis on the customer relationship
  37. 37. Use Account level strategies in early stages of consumer finance environments
  38. 38. 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
  39. 39. Aim at offering the right offer to the right customer at the right time
  40. 40. C&R Best Practices Step 6: the right offer to the right customer at the right time
  41. 41. Segment portfolio using customer/account analytics
  42. 42. Use Static metrics like Use Behavioral metrics like product type, customer exposure, account balance, etc Kept Promise Ratio, Nonstarter, Recidivist, time since last max bucket, etc
  43. 43. Results to decisions that Increase self cure rate avoid customer irritation Reduce costs protect customer relationship
  44. 44. C&R Best Practices Step 7: Pool vs Ownership
  45. 45. Before the implementation of automated outbound calling technology, most collection operations assigned accounts to collectors ‘from the cradle to the grave’.
  46. 46. This has changed the recent years in favor of dynamically distributing accounts to a pool of resources, which provides for increased productivity
  47. 47. Ownership Assignments Advantages Disadvantages Collectors can increasingly apply firmer collection Accounts are often segmented by billing cycle, tactics in a logical order as accounts age, since alphabetical order or other random group and the collectors become familiar with customers and number of accounts assigned to each collector may accounts. vary widely, making it difficult to measure and Collectors become familiar with customers and their compare performance results between collectors. specific situations, allowing them to be creative in When different collectors handle different working out payment arrangement accounts each day, week or month, a variety of Collectors are cross-trained in handling all tactics and techniques may be applied to attempt delinquency levels and most collection issues. 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
  48. 48. Pool Assignments Advantages Disadvantages Accounts are intelligently segmented and Collectors do not become familiar with customers distributed. and their specific situations, thus requiring more When different collectors handle different accounts each day, week or month, a variety of tactics and techniques may be applied to attempt the collection time in per call to familiarize Collectors do not choose customers to work on 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. .
  49. 49. Pool for soft collection in retail environments Ownership assignment for corporate accounts or hard collection and litigation management
  50. 50. C&R Best Practices Step 8: Multiple Contact channels
  51. 51. It is becoming harder to reach customers by telephone
  52. 52. Recovered amount = number of customers contacted
  53. 53. Employ multiple contact channels ATMs Mobile banking apps SMS Web based Collection portals IVR email auto dialers
  54. 54. C&R Best Practices Step 9: Centrally defined collection tools & communication scripts
  55. 55. object of collection is to obtain an agreement to repay the overdue amount, followed by fulfilment of this agreement.
  56. 56. 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
  57. 57. Pool for soft collection in retail environments Ownership assignment for corporate accounts or hard collection and litigation management
  58. 58. Soft Phase 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 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
  59. 59. Pre-Litigation 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
  60. 60. Agents contacting a customer represent the bank and should be helped to convey the right message and handle customers’ arguments effectively
  61. 61. 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
  62. 62. Simple repetition of similar messages in successive phone calls or mails is counterproductive.
  63. 63. A communication script should cover: Introduction discovery phase , involvement phase, incentives, and appropriate replies to arguments
  64. 64. 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
  65. 65. Extreme caution when selecting: Decision should not based solely on price, !
  66. 66. 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
  67. 67. Contract is #1 critical factor. 1 2 3
  68. 68. Extreme caution when selecting: Perform due diligence should & On-site visits DCA
  69. 69. 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
  70. 70. Manage them closely Monitor compliance with contract Measure performance Implement on-line collaboration
  71. 71. C&R Best Practices Step 11: Measure & Motivate your collectors
  72. 72. Collection agents are the means through which a collection strategy is mainly applied their performance must be closely monitored
  73. 73. Supervisors should assess collectors’ strengths and identify opportunities for improvement, in areas such as: Technology usage Product knowledge Compliance with strategy Communicational skills
  74. 74. Collectors need feedback about day-to-day performance Positive feedback improves self-esteem and personal competence Negative feedback may drive training activities & behavioral changes
  75. 75. 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.
  76. 76. 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 …
  77. 77. 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
  78. 78. C&R Best Practices Step 12: Exploit the power of technology
  79. 79. The common ground shared by all banks that have managed to turn the credit crisis to their competitive advantage is a DCA willingness to invest in technology.
  80. 80. Opt for a system that covers end to end in terms of: Time Product Line Location & organisation DCA
  81. 81. 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.
  82. 82. 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.
  83. 83. 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.
  84. 84. For further information please contact: Mr. Chris Maranis +30 210 7450300 chmar@exus.co.uk www.exus.co.uk Click here to download our relevant whitepaper Collection and Recovery: Meeting the needs of a changing world Follow us: