Each stage of delinquency—soft, pre-litigation, litigation and recovery—requires a different approach to keep collections on track.
When lenders have insight into a customer’s stage of delinquency, they can make the right offer at the right time. This improves collections performance, increases the likelihood of success, and raises self-cure rates. It also makes it possible to apply progressive pressure as borrowers move through each stage.
This is important because stages have different goals:
- In earlier stages (soft and pre-litigation), the focus is on customer cooperation. You place a high priority on preserving the customer relationship and minimizing the number of cases that move to later stages.
- In later stages (litigation and recovery), the focus shifts from protecting the customer relationship to protecting assets and minimizing losses.
To determine which offer is right for which account, you first need technology that can help you segment the portfolios on your books.
Portfolio segmentation makes the right offer at the right time possible. By prioritizing accounts based on risk, phase and likelihood of repayment, collections departments see better results and increased revenue.
Both static metrics (like product type and account balance) and behavioral metrics (such as kept promise ratio) should be used to segment portfolios. The goal is to both increase self-cure rates and reduce customer irritation.
Monitor Account Performance
Once segmented, accounts need to be monitored. Account monitoring gives decision-makers better insight and the ability to adapt when credit conditions change. Adequate collections technology should be able to monitor account performance via:
- Statistical models and mathematical algorithms that provide reasoning to back decisions.
- Strategy visualization schemes that dive deep into customers’ behavior.
- Open data architecture, which allows for integration between your current customer databases and other data sources, external rating bureaus and systems.
- Early warning detection that triggers delinquency prevention notifications and activities.
Employ Specialized Software at Every Stage
Monitoring doesn’t just happen during delinquency. To truly act effectively during delinquency, your organization needs to monitor much earlier than that. Technology that covers every part of the process can help.
A specialized collections software solution gives you the following features in each credit cycle stage:
- Credit Risk Monitoring: Robust risk scoring models, charts and graphs to assess both behavioral and application risk factors that impact your collections and identify early warning signals.
- Collections and Recovery: Tools to not only note customer insights, but to analyze trends, efficiency levels and changing risk levels.
Use Best Practices to Better Monitor Loans
Learn how to monitor loans and segment portfolios from the industry’s top experts in collections and recovery. All this and more is in our free guide, The Collections and Recovery Best Practices Manual. Download it to improve collections and recovery performance starting today.
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