5 BACK-OFFICE OUTSOURCING MUST-HAVES FOR LOAN SERVICING

Running a business is similar to putting on a live, on-stage performance. Your customers (the audience) see only what’s happening at the front office (the stage). The front office handles all of the most visible aspects of the business, such as marketing, sales, and customer service. However, your customers don’t see the additional work behind the scenes. Like stagehands behind a theater curtain, back-office staff work quietly to keep your business operating smoothly.

But if you don’t have an efficient and well-staffed back office, then your front office will suffer. This is where back-office outsourcing comes in. There are a lot of perks to outsourcing all of your back office needs, especially if you’re a small or medium-sized lender with limited resources. In this guide to back-office outsourcing must-haves, you’ll learn how to take advantage of this beneficial service.

What Is Back-Office Outsourcing, and Why Is It Important?

Back-office outsourcing is the process of hiring a third-party provider to perform some or all of the tasks of a traditional in-house back office, such as:

• Staffing or recruitment
• Accounting
• Data analytics
• Risk management
• Loan origination and structuring
• Technology implementation and troubleshooting
• Automated call centers or customer communications
• Compliance, and more.

Why not perform these tasks yourself? The reality is that many loan servicing companies, particularly small or medium-sized businesses, don’t have the budget or time to train a highly-skilled staff of back-office workers. To perform all the functions above, you would need to hire IT professionals, compliance experts, call center operators, loan officers, data scientists, accountants, and recruiters. It’s expensive, time-consuming, and complicated.

Back-office outsourcing saves you the headache. It’s faster to implement, more efficient, and often more cost-effective than maintaining in-house staff in a physical office space. If you want to take advantage of back-office outsourcing, there are five must-have qualities to look for in a third-party system.

#1: A Streamlined Online Portal

One danger of using back-office outsourcing is that it can create information silos. Your system won’t be as efficient if your front and back offices aren’t talking. To avoid this, you should hire a provider that offers online communication portals. Providers can set up individual logins for your in-house staff where they can access critical pieces of information they need to perform their jobs. The best providers also offer your staff online resources, training materials, and technical troubleshooting via a support or community portal. And, if you change loan rules or best practices, the online portal will also alert everyone at the company, which reduces overall risk and human error.

#2: A Comprehensive Loan Origination Software (LOS)

The main task of a loan servicing back office is to structure loans that attract borrowers while reducing risk. Using a modern LOS is a tried-and-true method for structuring and managing loans. However, building and managing one of these systems from scratch is a big job. Many small and medium-sized loan servicing providers don’t have the resources necessary to hire an IT staff to create one of these systems. Outsourcing your LOS is a better option. Look for a fully configurable system tailored specifically to your business. The best third-party providers allow you to add rules and features, such as analyzing alternative credit data or overriding automatic loan decisions manually based on your loan officer’s expertise and instincts. A great LOS is flexible.

#3: Reliable Risk Management 

In today’s lending market, managing a loan portfolio isn’t enough. Your back-end staff must also predict where the market is headed and identify red flags in lending applications. However, the challenge is that would-be fraudsters are becoming savvier. It’s getting harder to mitigate risk without an advanced predictive analytics system. This is where back-office outsourcing really shines. When you hire a third-party provider to handle every aspect of risk management, you’ll have the necessary resources to make wiser choices. Using AI, machine learning, comprehensive data analysis, and other predictive modeling tools, a third-party provider can identify a greater number of risky applications and automatically deny them or flag them for review.

#4: Efficient Disbursement and Repayment Schedules 

Managing the back end requires detailed and often very complex loan disbursement and repayment schedules. Rather than tackling all of this manually, you can hire a third-party provider to automate many of these tasks or have their own staff take care of these details. The best providers take your rules into account and then build a system around those rules. You can more effectively manage your entire portfolio and immediately begin communicating with borrowers if they miss a payment or need to change the repayment schedule.

#5: Friendly and Effective Borrower Communications 

While the front end is responsible for most in-person customer communications, you can also use back-office outsourcing to improve the business-customer relationship. Let’s say one of your borrowers has missed two payments. A reliable third-party communications provider will not only get in touch with that borrower but will also determine why the borrower is missing payments. The borrower may need a schedule readjustment before being sent to collections. Or, if your business is having trouble getting in touch with a borrower, the third-party provider can use data analytics and a bit of sleuthing to find a better method of communication. A third party can also manage automated call centers that allow you to stay in touch with your customers at a very low cost.

When you look for a back-office outsourcing provider, keep these five must-have features in mind. If you can find a provider offering all these services, you’ll keep your back office running efficiently.

How to Improve Back-Office Functions for Loan Servicing 

The number one tip to keep in mind when you hire a back-office outsourcing provider is to keep as many services under one roof as possible. The more providers you hire for each individual task, the more vulnerabilities you’ll have in your system. For example, if your call center provider isn’t communicating effectively with your LOS vendor, the call center may make mistakes when interacting with your customers. Any changes to the LOS must be communicated to the call center so they can give your borrowers accurate information. This puts you in the middle, which is not only stressful but also a waste of your time and resources.
 
Finding a provider that does it all eliminates the need for a middleman. You can communicate your needs directly to the provider and create a back end where all of the moving parts work in harmony. Your goal should be to create a back end that you don’t even have to think twice about. They should operate quietly and smoothly in the background, like flawlessly running theater light and sound—making everything better, without any noticeable difference in the front office.
 
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