Organisations are quite ready to access external information sources in an effort to gain a degree of comfort before accepting a customer on a credit arrangement.  However, the same facilities are rarely used at a later date when it becomes obvious that those same customers have become unable to meet their repayment commitments.

Such external data services have been around for many years, but how they are used within an organisation certainly requires a rethink.  While such services are well understood and widely used to assess prospective customers before credit is granted, the existence of such vital information is not as well known or understood by those staff tasked with the collections process.

And yet, it should be a priority for companies and organisations to make this happen.

So what sources are we talking about?

Credit Rating Agencies are well known within the customer acquisition process.  Their ability to source, collate and package information relating to millions of domestic customers makes them an essential tool for companies offering credit terms.

For credit grantors they provide a quick and relatively inexpensive way to assess whether a customer is worth the risk of the sale value involved and also, now they can help derive the most appropriate form of debt collection strategy for that individual.

Deploying external sources effectively

To minimise debt levels, an organisation must put processes into place which increase the likelihood of being able to recover most if not all the outstanding monies owed.  Two key issues become apparent in achieving this goal.

The first is the ease with which collections staff can develop a “profile” of the debtor, thus enabling them to develop a collections strategies which is most likely to succeed.  By comparing internal data to external scorecards they can assess risk more efficiently, and develop a series of “typical profiles” against which different collections strategies can be assigned.

Secondly, having profiled the debtor, the ease with which they can be traced and subsequently contacted.

External data services provide a range of services which taken together or individually can help address these crucial issues:

Locate & Trace – Basically finding out where a bad debtor can be found – what address; previous hits/alerts by other companies searching for them; ID check; mortality, telephone number, etc.

Integrated tracing – With an increasing number of couples living and lending together, the credit grantor needs to be aware when a customer is significantly involved financially with another person of a different surname.  The service also warns when a maiden name (or any other name by which that person is known) is connected to a credit applicant.

Gone-way Alerts – A specific service that collates all the information from other credit grantors that indicates when a person is about to move.

Fraud Alerts – By identifying those credit applicants who manipulate their name(s) in an attempt to circumvent a credit grantors screening checks you can minimise the risk, maximise profit and provide a better service to legitimate customers.

Credit Risk, Behavioural Scoring and Fraud Scoring – Commonly used to assess credit applications, scorecards also provide a relative assessment of an individual’s ability and willingness to pay, and the likelihood of them becoming a debt risk.  By analysing and segmenting the full debtor list into the different levels of score collections, staff can plan their workloads far more effectively, and develop pertinent strategies for each group, rather than treat everyone in the same manner.

How is this information presented?

Having such sizeable amounts of information about an individual sounds useful, but how practical will it be if you are a member of a collections team charged with recovering a debt that has now become three months overdue? If the person simply won’t pay, how does having a record that says they have been bad payers previously actually help you? Thankfully the information can help by giving a rating or scorecard which assesses the individual against key indicators:

• Risk – is delinquency habitual or an abnormality? Is the individual a real risk? The higher the risk scoring, the more monitoring will be required, and a greater frequency of contact made.
• Behaviour – how does the individual react to particular approaches, and consequently how quickly does the collection process need to escalate to legal proceedings?
• Fraud – how likely is the delinquency to be deliberate or accidental?
• Indebtedness – what other commitments does the individual have?
• Propensity to collect – on a scale of 1-10 how likely is it that, once they have been contacted, will they pay? The scorecard rating will identify the level of risk involved and indicate what strategies collections staff might assign to those at greatest or lowest risk of falling into delinquency.

As consumer lending grows, the percentage of debt that becomes delinquent will inevitably rise accordingly, and yet it doesn’t have to be that way.  Given the issues discussed above, it is clear that the collections process needs the information just as much as those granting the credit in the first place.

Accessing relevant information can significantly improve the ability to develop collections strategies that more accurately match the individuals concerned.

Instead of allowing simplified automated processes to dictate the way collections staff operate, (e.g. chase oldest debts first, rather than highest risk) companies now have the opportunity to develop tailored collections strategies that will optimise company revenue.

Sourced with thanks from AICM Credit Management Magazine & Bill Swale, Talgentra Australia.