Managing accounts and ensuring on-time repayment are the success mantra of every small business lending. But when it comes to maintaining consistent repayments, most of the time it is a nightmare to lenders. In the lending industry, this comes in the form of delinquency and, ultimately, charge-offs.
Delinquency begins when customers miss their first payment. After a period, the company is required to move the account from delinquency to charge-off status. Most lenders are faced with the fact that a certain percentage of debtors will never pay debts owed. This can inhibit their company’s ability to balance its books and budget for the future. Consequently, companies record the debts as unlikely to be paid and report them to credit reporting bureaus as charge-offs.
This is the model for many businesses, but collections can begin sooner, and account balances can be resolved more quickly to the benefit of everyone. So why can’t lenders plan for an early-stage collection process (pre-charge off) than post charge-off balances?
Pro active strategies to quell charge-offs before it starts
Pre-charged off accounts can involve collecting payments on accounts 1 or 2 days past due. The longer these accounts go unpaid, the longer they harm the creditor’s bottom line and the longer they can accrue interest, late fees, and negative credit reporting for consumers. All customers are not ready to be placed over to third-party collections, and therefore, with early stage collection approach works personally with every customer, reminding them of their obligation to bring their accounts up to date, while concretely maintaining your valued relationships. By using digital methods, proprietary segmentation, structuring, and analytic models, creditors can determine the best method of intervention and best agent to deal with and deploy the collection strategy on every specific case.
Early intervention has many benefits including:
- Increased cash flow
- Shorter payment periods
- Drastic Reduction in accounts that enter delinquency status
- Reduced write-offs
- customer master record updates
- 24/7 online accounting tracking, monitoring and status updates
- Complete payment processing options and payment updates (direct deposit, check-by-phone, credit card payments, e-payments, money orders or certified checks)
Being chased by debt collection agencies does not improve the situation. Digital Debt Collection enables consumers to self-manage payments and resolves their debts on their own before agents call.
Digital collection-a strategic priority for lenders
Effective risk prediction: Artificial Intelligence (AI) makes risk prediction accurate by analyzing rich data sources and increasing the accuracy of prediction models using machine learning (ML) algorithms.
Customized payment plans: With advanced digital and mobile technologies, mass personalization in debt collection is possible. A customized outreach and collection strategy can help collectors recoup their losses (some, if not all), while also helping customers pay off more of their debt. Personalization of debt collection strategy results in significant benefits – less outstanding debt, higher customer satisfaction and stronger relationships.
ML and Natural Language Processing Technologies : Businesses can aggregate customer data and proactively reach out to customers with alternative debt repayment options and credit counselling in order to mitigate their loss as well as prevent the customer from becoming delinquent
Effective debt recovery plans: AI powered chat bots, by analyzing financial history, can communicate with most likely to default customers, on their preferred channel, at the time convenient to them. Through videos or online content, bots can deliver relevant debt repayment options and recommendations.
There are several things that companies can find themselves with charged-off accounts to consider. First, they need a solid understanding of charge-offs. Second, they need to put in place a strategy for handling them.
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