Question

Describe the effective practices demonstrated by a collections officer, when developing a satisfactory solution with a defaulting customer.

Answer 1

Practices demonstrated by collection officer:

• Adopting proactive strategies before delinquency starts:

Preventive action is less costly & the best collection practices are those that manage clients who did not pay their previous dues properly. There are number of strategies available to deal with these types of clients:

1. Educating the borrowers about product features & collection fees & charges they need to bear in case of default.
2. Establishing mutually agreeable payment dates.
3. Addressing customer complaints & concerns quickly before they result in a late payment.
4. Using positive reinforcements by rewarding clients who make timely payments.

• Improving internal productivity of the collections area:

1. Determining the appropriate collection procedures by deciding whether to hire a specialized collection agency or to create an internal collections unit.
2. Selecting & training staff members exclusively for this purpose.

• Ensuring quality information gathering & management:

1. Developing efficient information & support systems to facilitate the monitoring of past dues of the clients & production of timely reports.
2. Ensuring good quality client information necessary for successful client location which has to be verified & updated throughout the process.

• Developing a well defined strategies for collections of delinquent loans:

1. Establishing a client contact policies that can include preventive strategies such as payment reminder, steps to be included in the collection process etc.
2. Designing databases to support the construction of risk management reports for performance monitoring & development of tools aiding collections decisions.
3. Effective client segmentation which involves classifying the customers based on attitude, capacity to pay, solvency & location.
4. It is in the hands of the collection officer to offer various payment alternatives to fit the diverse needs & situation of clients.
5. To conclude, excellent collection strategies should begin before there is a delinquency problem & end only after the loan is deemed a loss.