Financial services debt is the largest source of revenue for the debt collection industry. In the US alone, it accounted for about 40% of debt collection revenue in 2019. However, “Collections” is never easy. Financial institutions need to deal with a myriad of regulations, multiple forms of contact, collection agencies, and different borrower persona – including default cases. NBFCs (Non-Banking Financial Corporations), HFCs (Housing Loan Companies), and other Financial Services companies use multiple digital applications for collections. But the problem is – most of these applications are not connected. Lenders are strangled between siloed systems, which requires frequent manual interventions. An effective solution for a connected lending ecosystem is debt collection software.
What is a debt collection software?
A debt collection software is also known as payment collection software. It is a digital tool to track and follow-up with debtors, predict, and prioritize debt recovery. It also enables faster collections.
Usually, lenders rely on third-party collection agencies for repayments from clients. A collection software removes such dependencies. It can also send repayment reminders and offer payment terms to customers. It thus reduces the number of overdue invoices and increases repayment percentage.
Typically, a collection software integrated with ERP and loan management systems covers the overall debt management process.
“Canadian Customer Debt Relief (CCDR), Canada’s 4th largest Debt Collection and Management Organization witnessed a net increase of 60% in debt collection productivity with debt collection software.”
Debt collection software features
Financial institutions maintain a portfolio of their borrowers. Based on the borrower persona and collection strategy, lenders assign cases to call centers or resolution agencies.
Usually, debt collection software is customizable to the lender’s specific requirements. It might also have different offerings for accounts receivable and collection on bad debts. However, you can expect features like borrower management, recovery automation, and analytical insights in most of the debt collection platforms.
1. Panoramic borrower profile
Having consolidated borrower information helps agents strike a meaningful conversation with them. This profile also covers all the stages in the borrower lifecycle. Example: borrower onboarding, segmentation, debt recovery prediction, and case closure. Collection CRMs can access borrower information from several data exchange APIs. LOS, CIBIL, Experian Hunter, Perﬁos, NetBanking Connect, and PDF Statement Analyzer are some of them. This information strengthens the borrowers’ profile information for future use. Debt collection software also allows importing existing and older cases from other software.
Maintaining an accurate borrower profile is crucial for businesses to avoid the repercussions of chasing after wrong profiles. For instance, The Bureau of Consumer Financial Protection of the United States mentions receiving a large volume of complaints on an attempt to collect debt not owed.
2. Borrower segmentation or asset classification
Collections software segments your borrowers into different debt buckets. It uses DPD (Days Past Due), credit repayment history, the amount due, and repayment intent for segmentation. The system first identifies the number of debtors in each bucket. It then automates their movement from one bucket to the next based on time passed and repayment activities. It also categorizes and labels borrowers who have more than one loan due. After the system has classified borrowers, managers can decide the correct collection strategy. It may include call, email, or reaching out through field agents.
A leading Indian bank’s secret to faster debt recovery (download here)!
3. Case distribution
A financial service firm holds multiple debtor profiles and a team of contact centers, field agents, and resolution agencies. Workflow automation tools within debt collection software handle distribution right from the start of inquiry to disbursal and collection. It automatically maps and distributes cases based on the availability of collectors, agents, and geographical location. Managers can also limit case allocation to ensure that collection agents work on high-priority debtors first. Especially in small businesses, where resources are limited, automation comes handy.
Arif Hassan, Head – Customer Experience at Finnable, says, “One of our major concerns was missing out on cases or loan inquiries and it happened on a large scale. Workflow automation is a great relief since we can automatically distribute leads in a round-robin fashion based on our specifications.”
4. Activity tracking
Accounts receivable management is a crucial aspect of the lending business. It involves tracking your customers at every stage of their lives. Knowing the actions of your clients on your website, e-mails, and other assets can trigger a task for collection teams. As soon as the debtor interacts with your message, the collection management software reciprocates the details in real-time. For example, when a debtor opens an email notice that has been sent by the lender, an automated collections system triggers an activity for the call-center team to follow-up with the debtor.
5. Targeted notifications
Notifications can bring to the debtor’s notice about the repayment date. But people classify frequent notifications as spam (73.47% of users who receive too many notifications, label them as spam). However, targeted in-app, WhatsApp notifications, SMS, or Emails can remind debtors for the date and time due for the installment and loan repayment.
A lender may involve a first-party or third-party collection agency for debt recovery. First-party collection agencies are usually subsidiaries of the lending company, whereas third-party collection agencies are not a part of the original company. Nevertheless, a lending company must keep a tab of collection agents/agencies to ensure timely debt recovery. Let us see how debt collection software simplifies this aspect as well.
1. Call center lifecycle management
With debt collection software, you can easily manage the complete call center lifecycle from the time of the first contact to repayment collection. For instance, based on call-center documents on the debtor’s dispositions, automated emails can be sent for urgent action. If there is no response from the debtor on the email, the system can automatically assign the case to a field collection agent. On the other hand, if a debtor attends to the agent’s call and promises to pay, a payment link can be sent via email or SMS. Collections CRMs also provide ready-to-use templates for SMS, emails, etc. which further improves the debt collection efficiency.
2. Field collection agent productivity
Collection software effectively manages field-agents’ productivity with reminder notifications, day planner, and route guidance to optimize their time on the field. Agents can achieve this via web-based or mobile lending CRM. Managers can track all field force activities and ensure productivity. Also, the feet-on-street collections agents can keep a tab on their pending tasks on their mobile app.
Watch the webinar recording: Digitizing Collections for faster debt recovery.
3. API integration
Debt collection software allows integration with CRMs, loan management systems, other in-house applications, and third-party apps such as IVR Telephony, Whatsapp Business API, to name some. Such integrations overcome the challenges of information silos.
“Knowlarity, our telephony service, is integrated with LeadSquared. Since the sales rep can view the complete customer history, data sharing over mails within internal teams has reduced by 60%, increasing efficiency, and security.”Nitin Gupta, CEO & Co-founder, Finnable
4. Quality audit
QMS (Quality Management System) is a powerful tool to audit, measure, and improve the call quality via auto-selection logic (to select sample-recordings for audit per day) and auto-distribution logic (to avoid manual intervention). A custom-form scores each call-recording against multiple quality metrics. Then it generates an overall quality-score that acts as KPI (Key Performance Indicator) for the calling teams.
With this system, managers can identify the best and worst agents and define data-driven performance benchmarks. This is also helpful for training new agents with practical use cases.
Debt collection software analytics help decision-makers with data-driven insights on customers, collection efficiency, and team performances. These insights are crucial to evaluate ROI (Return on Investment) and eliminate bottlenecks from the collection funnel.
Smart analytics dashboards derive insights on borrower profiles, agent performances, active liabilities, pending payments, ongoing payment activities, and more. It also distinguishes cases based on a change in the lead stage and generates a performance report based on regions, agents, products, and teams.
The consolidated report covers the number of completed debt recoveries, intends to pay, non-responsive debtors, and the average time required for the debt recovery. With these reports, all the teams are in sync about the overall recovery performance – avoiding duplication of efforts. Thus, each stakeholder is aware of the defaulter’s stage of repayment.
Intelligent machine learning models can further predict the chances of recovery. Through automation and advanced analytics, you can assign recovery prediction scores to individual borrowers and the expected recovery time. This allows the management to take informed actions for individual cases and have a better contact strategy with the borrowers.
The bottom line
A recent LexisNexis survey highlights some of the serious challenges faced by first-party debt collectors throughout the collection process:
- Lack of time and technology to address duplicate, inaccurate and incomplete data. The challenges persist to manage disparate databases, impacting downstream processes.
- Segmenting accounts and prioritizing cases based on factual data.
- Contacting customers across different geographies and time zone.
- Mitigating default risks by working with customers to come up with a payment plan agreeable to the lending firm.
- Constantly changing regulations, often in favor of debtors make it difficult for collections departments to stay with the complaints – leading to litigation activities.
While the number of recovered debts show the success of your collection process, debt-recovery time and effective utilization of resources determine the overall business prosperity. Many Financial Services companies who depend heavily on third-party collection agencies end up paying commissions of up to 25-50% of the debt amount.
Debt collection software eliminates the dependencies on external institutions to a great extent by providing a panoramic view of cash flows and automating business processes. It also shows a realistic picture of the future cash inflows so that businesses can take proactive and informed steps.
Debt Collection FAQs
Debt collection software, also known as payment collection software, empowers lending organizations with end-to-end borrower management, recovery automation, and advanced analytics. It automates most of the aspects of the collection process.
Yes, many debt collection software integrates with ERP, loan management systems, and third-party apps.
You can use debt collection software to automate your collection process. View details.
The cloud-based collections software available for use on mobile is known as mobile lending CRM. Sometimes you will see both – responsive web application as well as a stand-alone mobile application for automating lending processes.