Delinquent account recovery is a serious financial drain for lenders. Mailing out late statements and hiring staff to call debtors daily is an incredibly expensive process. In some cases, lenders may spend more on account recovery than they’ll get from their borrowers after they pay off the outstanding balance.
This is why more lenders are partnering with white-labeled collections management companies to recover these accounts. White-labeled, end-to-end collections management centers use the latest technology to recover debt faster while using fewer resources. This technology maximizes your delinquent account recovery and ROI.
A Step-By-Step Guide to Effective Delinquent Account Recovery
Every lender will have to perform a delinquent account recovery at some point. Whether you’re offering leases, balloon notes, prime, or subprime loans, chances are that at least one of your borrowers will eventually fall behind on a payment.
How do you collect this debt quickly and fairly? Not only can it be difficult to track down borrowers and persuade them to pay off their debt, but there’s also a lot of red tape surrounding delinquent account recovery. You’ll face many complex regulations specifying how and when you can contact a borrower about outstanding debt. And if you fail to follow these regulations to the letter, you’ll open your company up to audits and hefty fines.
To maximize delinquent account recovery and shield your company and borrowers from regulatory violations, you should hire a third-party collections management expert to take care of each step of the recovery process. To recover debt, experienced collections management centers use a multi-tiered collections process based on data analytics and industry-specific delinquency trends. This process includes:
- Identifying delinquent accounts before borrowers get too far into debt.
- Getting to know your borrowers to find the best communication options and payment plans for them.
- Using alternative data to recover serious delinquencies and ensure that nothing falls through the cracks.
- Using repossession and settlement initiatives to recover high balance accounts.
With this four-step approach, collections management centers will recover your accounts quickly and painlessly so that you can focus on offering the best loans and services.
Step 1: Identify Delinquent Accounts
Prevention is the first step for effective delinquent account recovery. It’s always best to avoid sending your borrowers to a collections agency or reporting a late payment to the major credit bureaus. It’s time-consuming and expensive for you and very stressful for your borrowers. Instead, get in touch with borrowers immediately after the first late payment and only escalate the delinquent account recovery process if it’s necessary.
When a payment is late, the best way to maximize recovery is by updating the borrower’s contact information and verifying their data using a collections management software. During this process, collectors analyze the borrower’s lending and payment history to decide which payment options are most likely to work for them. Next, collections managers will offer the borrower a detailed list of payment options to avoid future delinquency. In many cases, this friendly, choice-based approach helps lenders get accounts on the track to recovery within just a few days or weeks.
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Step 2: Get to Know Your Borrowers
What happens if the borrower falls behind on more than one or two payments? Their debt moves into the next stage of the collections process—detailed debtor analysis. During this step, collections managers learn as much as they can about the borrower and the possible reasons why they’ve fallen so far behind on their payments.
For example, people prefer different types of communications. Some are more likely to check their email multiple times per day while others respond more frequently to phone calls or texts. Experienced collectors can use dialer technology to automatically send messages to borrowers via their preferred communication methods and keep track of which methods were most effective.
This step also involves some skip tracing, particularly if the borrower is hard to track down. It’s possible that the borrower moved or changed phone numbers. Collectors can use technology to track location-based data like:
- Utility bills;
- Job applications;
- Vehicle registries;
- Phone databases;
- Travel records;
- Credit reports;
- Criminal background checks; and more.
This data isn’t always easy to find, which is why many lenders hire a third-party expert. In some cases, borrowers may not even be aware that they have an outstanding debt, so this is an important step in the delinquent account recovery process.
Step 3: Use Alternative Data to Recover Serious Delinquencies
If the first two steps failed, or your borrower is intentionally ignoring your communications, you can leverage alternative data to resolve the problem. During this step, collections managers will use even deeper skip tracing methods to locate borrowers, including:
- Education documents or records;
- Occupational licenses;
- Other important alternative life event data that hasn’t yet been considered.
But locating borrowers is just one small part of the equation at this stage. By this point, the account is seriously delinquent and the borrower may be months behind on payments. Therefore it’s important for lenders to determine exactly how collectable the account is and whether it’s worth spending the additional time and resources to recover it at this time.
By scoring and categorizing accounts according to risk, you’ll maximize your resources. For some accounts that have a relatively low outstanding balance, it’s better to simply report the delinquency to the credit bureaus and wait for the borrower to contact you regarding the debt. This often happens months or years later when the borrower applies for a line of credit and is denied due to this major blemish on their credit report. Other accounts, often those with large outstanding balances, are worth pursuing further. Advanced delinquent account recovery software can help you determine the next best steps to take.
Step 4: Use Repossession and Settlement Initiatives
You can’t always afford to write off an account or wait for a borrower to pay off the balance. Some accounts reach a tipping point where the outstanding balance is so intolerably high that ignoring it would seriously impact the lender’s bottom line.
You can decide what this tipping point is, but it’s important to have a system in place for flagging outstanding balances that are too large to lose. Using custom account management software, you can create rules that automatically flag accounts once the balance reaches a specific amount or after you’ve contacted the borrower a certain number of times.
At this point, white-labeled collections management providers will escalate the delinquent account recovery process by either hiring a repossession team to secure assets or by settling the issue in court. This process is particularly tricky to navigate, as there are many laws regulating repossession and legal debt collection. Having an experienced collections management company on your side helps protect you from liability and recover what is rightfully yours.
The Best System for Recovering Delinquent Accounts
Delinquent account recovery isn’t as simple as contacting borrowers when they miss a payment. Some people are facing difficult financial situations that they’re not sure how to escape. Others intentionally dodge payments to game the system.
Even if you can prove that a borrower is intentionally avoiding payments, you can’t call them every few minutes or show up on their doorstep demanding payment. You must follow every guideline from the Consumer Financial Protection Bureau (CFPB), the Federal Financial Institutions Examination Council (FFIEC), and all state regulations.
In these scenarios, it’s helpful to have a detailed, data-driven recovery system and an experienced collections expert on your side. Data-driven analytics systems prevent you from spinning your wheels on accounts that aren’t worth the extra effort. You’ll spend more time and resources on the accounts that have a real impact on your bottom line.
Collections management experts also help you retain an air of professionalism and legal compliance throughout the delinquency recovery process. Some borrowers simply fall on hard times. They’ll appreciate being treated with respect by empathetic and well-trained collectors. You can retain a sterling reputation as a lender that truly cares about your borrowers and makes every effort to recover debt efficiently and courteously.
defi SOLUTIONS helps lenders and financial institutions recover debt and minimize losses. For more than 30 years, we have provided lenders with all of the tools they need to resolve delinquencies using our advanced multi-tiered recovery process and specialist training. If you’re ready to recover what’s owed to you, contact our team today or register for a demo.
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