HOW TO MAXIMIZE DELINQUENT ACCOUNT RECOVERY

 

Delinquent account recovery is a serious financial drain for lenders. Mailing out late statements and hiring staff to call debtors on a daily basis is an incredibly expensive endeavor. In some cases, lenders may spend more on account recovery than they’ll get from borrowers when they pay off their outstanding balance. 

This is why an increasing number of lenders partner with white-labeled collections management companies when trying to recover these outstanding balances. White-labeled, end-to-end collections management utilizes the latest technology to recover debt faster and more efficiently. This technology maximizes return on investment (ROI) from delinquent account recovery.

A Step-By-Step Guide to Effective Delinquent Account Recovery

Every lender will, at some point, need to perform delinquent account recovery. Whether offering leases, balloon notes, prime, or subprime loans, it’s inevitable that at least a small proportion of a lender’s customers will eventually fall behind on payments. 

The key to collecting on defaulted payments involves dealing with delinquent accounts fairly and quickly. It can be difficult to track down borrowers and convince them to pay off their debt. There are also certain protections for delinquent borrowers regarding recovering missed payments or uncollected debt. The regulations are complex on how and when borrowers can be contacted concerning outstanding debt. Not following the correct procedures may result in lenders being audited or fined.

Lenders need to maximize recovery on delinquent accounts while shielding themselves from violating regulations. One of the best ways to do this involves outsourcing the recovery process to a third-party expert. Experienced collections management centers use a multi-tiered collections process based on data analytics and industry-specific delinquency trends to recover debt. This process includes:

1. Identifying delinquent accounts before borrowers miss too many payments to make their debt unmanageable. 
2. Getting to know borrowers to find the best options for communicating with and making payment plans for them.
3. Using alternative data to recover serious delinquencies and ensure that nothing falls through the cracks.
4. Using repossession and settlement initiatives to recover from accounts with high balances.

This four-step approach will allow collections management centers to recover debt owed quickly and painlessly. This allows lenders to focus on offering the best loans and services.

Step 1: Identify Delinquent Accounts 

A key step to effectively deal with delinquent accounts is preventing them from becoming delinquent in the first place. It’s best for lenders to avoid sending their customers to collections agencies or reporting late payments to credit bureaus. It’s time-consuming, expensive, and very stressful for both borrowers and lenders. A better way to deal with this situation entails getting in touch with a delinquent borrower immediately after the first late payment, then escalating the delinquent account recovery process only if necessary. 

With late payments, the best way to maximize recovery involves using collections management software to update and verify a borrower’s contact information. This allows a collections specialist to analyze the history of a specific borrower’s loan details and payments. Only after evaluating these can a lender decide which payment options are most likely to work to move an account out of delinquency. Collections managers will then often offer detailed payment options to help them avoid future delinquent payments. This friendly choice-based approach gives lenders a more reliable way to get accounts back on track, with recovery often taking just a few days or weeks.

Step 2: Get to Know Your Borrowers

When a borrower falls behind more than a payment or two, the collections process proceeds to the next stage. Here, a detailed debtor analysis helps collections managers learn as much as they can about the borrower. This helps lenders identify possible reasons why a borrower has fallen so far behind on payments.

Sometimes, it’s just a matter of changing how they communicate with borrowers. While some people may check their emails multiple times per day, others respond better to phone calls or texts. It’s important, too, that outsourced collection associates use advanced dialer technology to send automated messages to borrowers. Doing so via their preferred means of communication normally results in a better response rate. It’s also essential to track which method works best for a specific borrower.

This stage may involve skip tracing, especially should the borrower be challenging to track down. Borrowers move or change phone numbers and, in some cases, don’t inform their lenders. Collection teams can use technology to track a borrower’s 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 often hire a third-party expert to handle their collections. In some cases, borrowers may not even be aware that they have outstanding debt, so this tracking process is vital in the delinquent account recovery process.

Step 3: Use Alternative Data to Recover Serious Delinquencies 

Should the first two steps fail to produce results, or if the borrower intentionally ignores communications, alternative data can be leveraged to resolve the problem. Collections team members may need to use even deeper skip tracing methods to locate borrowers, which can include: 

• Education documents or records
• Occupational licenses 
• Other important alternative data about life events that haven’t yet been considered

But locating borrowers is just a small part of the equation. Often by this point the account is seriously delinquent, with the borrower many months behind on payments. It’s important as a lender to determine the collectability of the account and whether it makes sense to spend additional time and resources to recover the debt immediately.

By scoring and categorizing accounts according to risk, lenders optimize the use of their resources. For accounts with relatively low outstanding balances, it’s usually better to just report the delinquency to the credit bureaus. This means waiting for the borrower to make contact regarding the delinquent debt, which may happen months or even years later. This often occurs when the borrower applies for a new line of credit and is denied due to negative aspects on their credit report. Other accounts, usually those with large outstanding balances, are worth pursuing further. With these, advanced delinquent account recovery software can help determine the next steps to take.

Step 4: Use Repossession and Settlement Initiatives 

Lenders can’t always afford to write off a delinquent debt or wait until a borrower pays off an overdue account. Sometimes the balance on an account reaches a point where it becomes too high to ignore. In such cases, it can even impact the lender’s bottom line.

Lenders must decide where that tipping point is. However, it’s essential to have a system in place to flag large outstanding balances. Through the use of custom account management software, lenders can create rules that automatically flag accounts once the balance reaches a specific amount or when a borrower has been contacted a certain number of times.

At this point, white-labeled collections management providers will escalate the delinquent account recovery process. They’ll either hire a repossession team to secure assets or settle the issue in court. Lenders must handle these issues delicately, as debt collection and repossessions are heavily regulated. Yet, with an experienced collections management company on their side, lenders can both recover amounts owed while steering clear of liability.

The Best System for Recovering Delinquent Accounts 

Delinquent account recovery isn’t just about contacting borrowers when they miss a payment. Some of these people are facing difficult financial situations from which there isn’t always an easy escape. Others intentionally game the system by dodging payments.

Even for those intentionally avoiding payments, there are still rules lenders must follow when contacting borrowers about outstanding debts. Lenders must follow all guidelines from the Consumer Financial Protection Bureau (CFPB), Federal Financial Institutions Examination Council (FFIEC), and state regulations.

In these scenarios, it’s helpful to have a detailed, data-driven recovery system in place. The expertise of a collections representative who advocates for a lender is invaluable when seeking to collect debt. In conjunction with outsourced collections, data-driven analytics systems help lenders manage delinquent accounts more efficiently. This allows lenders to spend their resources on accounts that truly impact their bottom line. 

Outsourcing to collections management experts also helps lenders maintain professionalism and legal compliance throughout the delinquency recovery process. For delinquent borrowers who’ve just fallen on hard times, a respectful, empathetic collections expert with ample training will be greatly appreciated. This allows lenders to retain their reputation as a lender who cares while making every effort to efficiently and courteously recover debt.