Effective Debt Collection Strategies For Banks And Credit Unions

There are several strategies that a bank or credit union can use to maximise the effectiveness of debt collection effort. A debt collection agency can be a reliable partner in this process. Its support services allow the financial institution to avoid hiring more employees and adding more resources for these jobs.

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Direct Communication Focused on the Individual Customer

Effective, timely and appropriate communication is critical to the success of Debt collection process. The communication must be consistent with the customers. It must take into account a customer's record with the financial institution and the value the person brings. The bank must convey clear expectations. The communication mode preferred by the customer should be used rather than what the bank finds more convenient. These steps improve the repayment success rate and also help retain the customer.

Make It Simple for the Debtor to Pay

The process to repay should be easy and convenient for the debtor. The bank should offer different payment methods including money deposited in the account, credit/debit card payment, and bank to bank transfer. The bank should be connected with popular payment gateways that most people now prefer to make payments.

Clear Repayment Guideline

The bank should be clear about what it expects from the debtor. The communication must use simple language and communicate clear expectations every time the customer is reminded of repayment. Any agent hired for this job must communicate with the borrower clearly.
Offer Incentives for Repayment on Time or for Clearing the Outstanding DebtThe incentives can be offered in different ways. The banks and credit unions can develop different plans for this purpose. The debtors can be offered an option to restore their negative account by paying reduced or no penalty charge. The customer can be offered other benefits that do not harm the finances of the bank.

Regulatory Compliance

The bank must comply with all regulatory requirements related to the debt collection. Failure to do so not only risks inviting penalties from the regulatory departments; it also harms the bank's reputation. If this job is outsourced to a debt collection company, its agents must use only legal and ethical strategies.

Automate the Process

Several manual tasks related to this process can be automated. It is important to keep a record of all actions taken by the bank. This data should include all communication exchanged between both parties. It avoids asking for the same data or contacting a debtor again unnecessarily. A customer relationship management program can be used to keep a record of all communication with the debtor.

Prioritise Higher and Long Standing Loans

Older loans and loans with higher amounts should be given priority when pursuing outstanding loans. The bank should pay attention to how much money will be recovered when compared to the effort it will take in debt collection. Low value strategies should be preferred when collecting lower value loans. Changes in the credit score and behaviour of the customer should be noted. Collection efforts should be customised based on these details.

All pending loan accounts should be handled through a centralised debt collection department or desk. The strategies for collecting debts should be automated with the help of relevant software programs. The communication should be customised for each customer and a record of all communication and efforts should be maintained. These strategies improve the success of debt collection efforts.