Portfolios have become more complex. With credit capacity limited, stronger regulations in effect and a rise in non-performing loans worldwide, today’s collectors need big picture insights more than ever before. The many reasons why, include:
- The ability to anticipate faster which loans will be low-risk or high-risk to better manage available credit and ensure overall portfolio health.
- A need for both quantitative and qualitative data-driven strategies that are dynamic enough to satisfy regulators.
- Collective insights that give your collectors and decision-makers the data they need to make sound business decisions.
In this, our first post in the Tech’s Role in Debt Collections series, we explore one tactical approach sure to give your bank, utility or telecom the information it needs to make its smartest decisions: risk scoring.
What is risk scoring?
Risk scoring is a strategy to help your business identify, monitor and assess risk for each loan or payment obligation across your portfolio.
By using rules based on data-backed analysis, behavioral criteria and your business’ specific needs, risk scoring makes it easier to assess your organization’s liabilities and prevent accounts from becoming delinquent. It also improves loan disbursement, CRM profiling, marketing and portfolio segmentation throughout the loan or payment lifecycle.
For instance, both static and behavioral metrics may be used to assess a portfolio’s health. A collector may combine the product type, customer exposure and account balance (static metrics) with kept promise ratio and time since last max bucket (behavioral metrics) to arrive at a risk score.
Why is risk scoring important for success in collections?
Scoring helps businesses accurately assess portfolios at any given credit cycle stage, improving business results, identifying warning signals before they become liabilities, and satisfying regulations.
Improved risk assessment prevents unnecessary delinquencies or portfolio danger by allowing your organization to implement proactive strategies quickly. With enough notice to respond, your team can handle challenges as they appear, instead of when they get serious.
How has technology made risk scoring more robust?
With the increased complexity of portfolios, organizations need solutions that are flexible, responsive and comprehensive. Collections software technology offers the rapid response and extensive insight needed to truly keep your finger on the pulse of portfolio risk. It does so by providing the following features:
- Account analytics available in real-time from anywhere.
- Provides early warning system models that identify pre-delinquency triggers and actions to take.
- Ability to score and segment portfolios that are actually in delinquency, allowing the right offer at the right time, depending on if they’re in a soft- or hard-collection phase.
With flexible insights available when you need them, your operational teams can focus on keeping customers happy and maximizing revenue generation.
Tools and Techniques to Assess Risk at Every Loan Stage
Collections is a risky business: low, high and everywhere in between. Understanding customer behavior before it becomes delinquent helps you capture more revenue and create better customer relationships.
Are you ready to improve your loan monitoring and collections approaches using tried-and-true best practices compiled by industry experts?
Try a few of the collection strategies outlined in our free collections and recovery best practices guide to tackle every stage of the loan process—from origination to recovery—with the right combination of technology, strategy and industry advice.
Image Source: Derek Gavey under Creative Commons Attribution 2.0 Generic