Debt collection is a big business in the United States. According to IBIS World, the industry netted $11 billion in revenue as of June 2019. While this is a downward trend due to stringent debt collection regulations (calls are limited to six debt collection calls a day per account), this is still a lot of money.
In a report by the National Consumer Law Center, debt is a huge problem for the American consumer. Borrowers are unable to pay their debts mainly because of job loss or scarcity, illness, divorce, or other unforeseen circumstances.
The same report also says that debt collection agencies are very aggressive and often attempt to collect a debt that is not owed by the consumer or has been paid already. On top of that, 15% of consumers are taken to court in the past year regarding a debt they were contacted about.
These are worrisome numbers that paint a sinister face on the debt collection industry. However, companies can mitigate that by identifying risks at an early stage, automating debt collection, keeping accurate records, and being protected in every phase of the credit lifecycle. These things and more are possible with the help of debt collection software.
It can change every facet of your business and enable you to be successful in the long run. Below, we discuss comprehensively how it can do so.
Credit risk is the possibility of losing money due to clients’ non-payment of their principal as well as of their interest owed. If borrowers do not pay back what they owe, it can result in cash flow problems for the lender. While it is not possible to pinpoint exactly which client will not hold up their contractual obligations, it is still possible to assess the risks they pose to the business. This way, risks can be mitigated or lessened.
This is possible with the use of a debt collection software. Such platforms nowadays feature scoring tools that can determine who among the borrowers are highly likely to experience distress or to default.
Additionally, there are tools available that allow businesses, such as utility companies, to follow up on those borrowers. There are also warning systems included in a debt collection platform. This means that once it determines that borrowers pose a risk to the financial stability of the business, it will tell the administrator or the relevant persons for them to act on the issue immediately. As a result, the company can prevent financial losses.
How does a debt collection platform do that, exactly? It can do that by looking at the consumer’s data regarding the following:
Upon the completion of the evaluation, you can make a decision whether to approve the loan application or not. If you do, the software will be with you every step of the way as it continually assesses the situation with the borrower.
Automation is the practice of having repetitive tasks performed by a machine. This is possible through rules-based engines and workflow editors that help implement automation. With this, employees can complete their work faster and with little to no errors. On top of that, there are other advantages such as the reduction of biases, as IBM states in an article.
Debt collection can be a grueling job that can benefit from automation, which is among the debt collection software features that can be found in the best platforms. An example scenario would be the automatic sending of notifications to debtors to remind them to pay their dues. It can automate other stages of the recovery process as well to further lighten the burden of collectors and recovery personnel.
Moreover, automation reduces operational costs. This is possible since collection executives can focus on their tasks or on optimizing their collection techniques to ensure that they are successful in their collection endeavors.
In debt collection, legal proceedings cannot be avoided at times. To that end, the debt management software keeps accurate records of transactions, any communications, attachments, as well as copies of the contract.
Among the myriad debt collection software features are legal documents generation, payment arrangements management, and handling for third-party expenses. These allow the seamless execution of litigations and the management of fees and invoices incurred.
Additionally, the best debt management solution can support different legal processes. It would have a configurable framework that companies can tailor to their legal structure. Thus, they can make the software adapt to the way they do things. But more importantly, utilize the application in the best way possible for arbitration processes.
Effective debt collection requires patience and diligence. The best debt collectors are considered at the top of the game because they have honed their skills over the years. Meanwhile, those who are new to the field are yet to develop their own strategy. And that is something that collection software solutions can help with. That is because it can simulate the effectiveness of a technique before they are deployed.
Financial suites or debt collection platforms have simulation models that authorized personnel can utilize even without the assistance of IT. There are also tools available that allow them to tweak their strategy design so that they can come up with a system that works best for them and yields the highest success rate. You can also check out a compilation of budgeting software solutions to streamline your financial and accounting tasks.
If your organization starts out small, you may want to expand later on. That is why you need a platform that can grow with you. Many debt collection management software available in the market have scalability as a feature. This means that even if your requirements expand, you will still be able to keep using it.
More than that, you need a platform that is adaptable. We have mentioned above that there are certain aspects that you can tweak to serve your purposes. This is important, as you need a solution that can help you resolve your issues and not make you adapt to its own system of doing things.
The credit lifecycle or credit cycle is the stages when borrowers can access credit. From low-interest rates and easy borrowing to the contraction periods when funds have limited access or availability. No matter which phase of the lifecycle it is, lenders need a debt collection management platform to assist them. Fortunately, there are vendors that cover everything with comprehensive financial suites. This way, you can protect your business from delinquent borrowers, legal actions, and cash flow problems.
At the end of the day, what lending and collection businesses really have to do is to minimize risks while reducing costs to prevent financial problems. While debt collection software prices may seem steep at first glance, put in perspective with the gains it is not so expensive anymore. Since a financial suite can start protecting you from the beginning of the credit lifecycle and continues doing so throughout. Thus, your lending or debt collection business can be fruitful and can avoid lengthy and costly legal proceedings.
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