The precise and opportune information about the delinquent clients, loan situation and important information that bring feedback about the credit cycle is relevant for the successful on collections
Develop Efficient Information and Support Systems
To properly analyze collections activities, it is necessary for the institution to have in place an efficient information system to facilitate the monitoring of past-due clients and the production of clear and precise reports. Generally there are three kinds of reports:
Management reports, such us lists of past-due clients to visit by loan/collections officer, list of past-due clients by amount and days late, or daily collections report, used by field staff to follow up with clients. These reports are usually generated daily.
Monitoring reports, such as delinquent portfolio by product, ratios of efficiency on collections, and summaries of portfolio by ageing and zone, used by middle and senior management to analyze and address delinquent portfolio performance. These reports are usually generated weekly or monthly.
Risk-Management reports, which monitor collections impact over portfolio performance by tracking indicators for normalization, billing cycles, recovered balances, and individual roll down ratios. These reports can be generated daily to track seasonality or monthly for forecasting purposes and performance management.
The system should also maintain a history of actions taken and collections activities implemented. This is especially important when there are many potential channels for collections (loan officers, collections agents, call centers, collections campaigns, etc.) in order to ensure continuity in terms of collections activities carried out by each participant and avoid duplication of efforts and contradictions.
Ensure Quality of Client Information
Just as regular client contact is key to an effective collections process, so is the collection of quality client information necessary for successful client location. During the account opening and loan application process, the lender should request several pieces of information, including the client’s full name, address and clear instructions on how to locate the client (including map coordinates), telephone number and personal and commercial references.
During each step of the collections process and by each participant in it, this information should be verified and updated as necessary in order to facilitate seamless contact with the client throughout the process. Lenders must develop tools and strategies for updating client information in the database, without compromising secure access controls or quality of information. One possible way to ensure integrity of the information is through the development of an incentive system for staff to encourage timely and accurate database updates.
Establish an Internal Past-Due Committee
A past-due committee is made up of branch staff who participate in the collections process, including loan officers, collections agents, branch managers, and others. Periodic meetings are held to discuss and analyze specific past-due clients and collections strategies and processes. During committee meetings suggestions may be offered, and participants learn from the errors identified in the evaluation and approval process/phase. The committee also discusses and analyzes portfolio statistics, challenges and achievements.
The past-due committee is useful to develop a culture of good loan creation and collections practices within the institution and helps provide feedback to management on collections strategies, policies, and procedures. It also helps to control delinquency, encourages good decision-making practices, and provides a valuable forum for learning/training from the field.
Establish Internal Process Control Units
Process control is an important tool for obtaining ongoing feedback and assessment. It is used to keep management informed regarding the quality of operations in the branches and the correct application of credit policies and processes. Process control should then prevent deviations from the established methodology that could potentially have a negative impact on portfolio quality.
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