It’s no secret that the market currently makes delinquent portfolios and non-performing loans (NPLs) more probable.
Risk mitigation is a must to combat rises in NPLs, increased regulation and general uncertainty. After all, the cost of risk is high. Elevated risk levels drag your portfolios further into delinquency, decrease your financial organization’s odds at recovering against assets on its books and increase your chance at bankruptcy.
As such, collectors cannot afford to make missteps that could drive their portfolios even closer toward unnecessary risk.
A key piece of collections technology called an early warning system (EWS) can help. It reduces the probability of customers moving into default and helps your team accurately assess your books before it’s too late.
What is an early warning system (EWS)?
An EWS is a system of rules that automatically flags accounts in danger of delinquency, such as those with histories of late or infrequent payments, by using:
- A set of common early warning triggers, defined by your collections team.
- Internal and external data sources, including known electronic/credit line changes, expert knowledge from key personnel or branch risk managers, and hierarchical or rule-based prediction models.
What are the core benefits of an EWS?
An EWS allows your collections team to proactively prevent credit risk rather than simply react to it after it’s too late to address. This provides your team with the following immediate benefits:
- Less time spent applying different models and processes in early stage portfolio analysis, giving your team more time to do what they do best: collect.
- In-depth insights that help your teams refine and improve delinquency trigger definitions for improved recovery rates and less overall risk.
The best part? An EWS could be readily accessible through your existing debt management software provider. This means you don’t need to build an EWS from scratch to quickly implement this type of technology. You simply have to invest in a solution that already has the features your business craves for better portfolio management.
What should your financial organization look for in an EWS?
Above all else, look for an EWS that promises fast implementation, ease of use and scalability. As you assess your options, be sure all team members, even those that struggle with technology, could adopt the solution without the need for extensive rounds of training.
Once these aspects of the solution are confirmed, look for the following core features:
- Monitoring models and visual displays that show delinquency risk at a quick glance.
- Tools that collect from a wide variety of data sources (both internal insights, such as current customer information, and external insights, such as credit scores).
- Watch list functionality to create customizable lists based on scores assigned through credit risk weighting rules.
When you adopt an EWS solution with the above features, you’ll be better prepared to recover more and default less from the start.
Learn More About How to Evaluate Collections Technology Like An EWS
Specialized collections software is created by collections experts so you don't have to build solutions from scratch. Learn more about EWS essentials and the other collections software features you need to explore by downloading this free collections software purchasing guide.
What tools does your financial institution use to prevent delinquencies? Share your thoughts in the comment section below.
Image Source: Robert Couse-Baker under Creative Commons Attribution 2.0 Generic
About the Author
Chris Maranis is EXUS’ Head of Business Development and has more than 11 years expertise in the field of Risk Management. He has lead the implementation of projects addressing areas such as Debt Collection & Recovery, Basel Compliance, Application & Behavioral Scoring for financial institutions in 13 countries. Mr. Maranis has also given speeches at collection forums, has delivered debt collection management seminars and has published articles in banking/ financial magazines.