The financial system in India has faced several hurdles and continues to struggle in the face of a volatile economy. Post demonetisation, the government shut out all the loopholes of earning and circulation of black money, leading to strict rules of accounting proof underlying every single transaction. This prompted many businesses to slow down as the liquidity crisis raised its ugly head. Add to that the declining GDP rates which fell to 4.5% in the second quarter of 2019-20, as opposed to 7.1% in the same period in the year 2018-19. All of this has led to a slow debt recovery owing to the increased interest rates. Lending institutions are facing the heat with many accounts turning into Non-Performing Assets (NPA’s).
The difficulty in money recovery and uncertain cash flow is a huge deterrent to businesses in India, rendering entire business environment ineffective and pulling down India’s score in the Ease of Doing Business Index released by the World Bank. With regards to the recovery of debts, there are certain problems faced by the debt collection agents which need to be addressed by the Government at the macro level.
Problems Faced by Debt Collection Agents and How to Solve Them!
Oral contracts are entered into verbally, without any written record of the same. This means that if the terms of the contract are not met, both the parties have no paper trail to follow and prove that such a contract was even entered into, which will render the aggrieved party helpless as they will not be able to challenge it in the court of law. Therefore, oral contracts should be avoided as far as possible by the businesses. But if there are instances where oral contracts are the generally accepted trade practice, she same should be done in the presence of witnesses, who can at the very least attest the existence of such a contract in the event of a breach.
Faulty Written Agreements:
Written agreements are no better than oral contracts, wherein the existence of the contract can definitely be proved easily, but it comes with another set of problems altogether. Apart from being poorly drafted, the parties involved in many written agreements are not habituated to get a grip of the undersigned terms and conditions of the contract. A lot of times people end up entering into a contract which was null and void from the very beginning, but had no knowledge of the same since they did not bother asking relevant and meaningful questions at the start, which ultimately leads to cancellation of the contract and the lending party is sad, left nowhere to go. Therefore, before entering into any written agreement an important prerequisite to pay attention to is to ask questions if something sounds fishy or looks vague.
Money Recovery Issues:
Some of the most basic problems with regards to recovery of debts are the terms and conditions of the contract entered into, how valid are they? What is a certainty? What is the financial background of the parties entering into the contract?
Collection Methods Are Not Real-Time:
One of the major roadblocks in the process of debt recovery is the absence of real-time collaboration between the borrower and the collector. This is a huge industry-wide challenge faced by all collection agents. Every debtor’s repayment abilities are unique owing to differences in their financial backgrounds, which requires collectors to create customised collection plans. But due to frequent communication breakdowns, this is made very difficult. All of this not only results in a long, complicated and incomplete collection process but also hinders them from offering smooth customer experience. The details of the lending agreement such as repayment plans, document exchanges, calculations etc should be instantly shared between collectors and debtors, in order to build a relationship of trust between the two parties from the very start. On the other hand, the debtor may have to run around to arrange the documents, get them printed or scanned, leading to a long process and a shaky beginning.
The collection industry has failed to keep up with the technologically advanced mobile generation of today. Research indicated that most borrowers or indebted population depend on mobile devices as they are on-the-go, but the industry has not been able to optimise debt collection policies in tandem with this growing trend. The customer experience ultimately suffers and creates problems for debt collection agents to recover the loan amount.
Too Many Calls:
Customer experience is at the helm of every business and loan recovery is no different. One of the major pain points of every customer is that they receive an unreasonable amount of calls from collectors. Many regulations exist which call for a limit on the number of such calls that the debtors can receive, but due to industry-wide recovery policies followed, collection agents end up calling debtors at odd intervals, due to which debtors often complain of feeling harassed. In-efficient processes on the part of collection agents lead to wastage of precious time of both collectors and debtors.
Contacting Wrong People:
Many times collectors end up calling debtors who have long paid off their debts, just because their records are not updated for the same. Again, an ineffective communication process is to be blamed. Not only are the debtors bothered for no reason, but the collection agents lose out on important time which could have been invested in contacting real recovery opportunities.
Customer bankruptcy is the ultimate disaster recipe. There is no guarantee of recovery of money anytime soon. The recovery process depends upon the terms and conditions of the contract entered into. Most times, collateral is kept against the debt given. The lender has the right to receive money after attaching the assets or getting the collateral in possession. However, a customer going bankrupt is a huge blow to the collection agent, as debt recovery then is a long, tedious process.
The debt collection process has not kept pace with the changing business environment and continues to function as they have been handed down for decades. There is no proper segmentation done for the customers. Income-wise segmentation is not enough. The collection agencies need to dedicate resources to analyze a customer and his income bracket. They tend to bring all the debtors under one broad category, which proves to be inefficient.
Lack of Tools:
Not all debtors turn bad, in fact, most of them are capable of paying back their dues with just a little hand-holding like offering assistance or motivating them properly. But most debt collection agents are not provided with appropriate tools to analyze customers in the right manner, due to which find themselves at a loss to provide flexible payment arrangements. They are not equipped with the right tools to picture debtors as customers and then proceed to recover money from them.
How to Solve Problems Faced by Debt Collection Agents?
In order to solve the pain points of the collection industry, taking assistance from the modern collection systems and processes is inevitable. The modern collection processes aim to streamline operations and lead to a win-win situation for both debtors and creditors. A modern collection management software comes handy, letting the collection agents take advantage of the robust internet networks and a centralized financial system:
Auto-generated Customer Statements:
Your debtors should be able to receive all his customer statements and payment notifications via SMS and emails, which is mostly available at everyone’s quick disposal. This should also include a UPI payment option where customers are given the convenience to make online payments using their debit or credit cards, thus avoiding the wastage of time in taking a trip to the bank.
One of the major benefits of going digital via software is to be able to segregate and segment your customers. Debtors should be segmented based on factors such as amount due, ageing, percentage outstanding and credit limit. The software will use analytics to figure out all of this, thus leaving the debt collectors with better chances of recovering debts, especially from delinquent customers.
Since every debtor is different from another in respect to the amount borrowed, credit terms agreed, his credit score etc, it is necessary to personalize a collection strategy for each customer or a category. Post this, a course of action can be determined such as friendly reminders, phone calls etc. All of this can be done systematically wherein every customer will have a separate folder on a common dashboard and every interaction will be maintained with the customer with utmost transparency.
An effective debt collection program is successful starts with a paradigm shift. The debt collectors should get proactive and use analytics and account receivable scores of various debtors. They should be able to look at the accounts receivable cycle as a whole, instead of just focusing on unpaid accounts. They should adopt a holistic approach to finance to help predict future cash flow hurdles and take preemptive measures.
Give Debtors Options: Conduct thorough background research on the debtors, before even going in to recover dues. Take into account factors such as if he is a good payer or is this becoming a habit, whether he has tried to reduce the debt or not, or whether he has explained the situation to another staff member on your team. Keep conversations recorded via emails or at least documented along with their signatures, for future follow-ups. Debt collectors need to realise that the process of loan recovery may seem threatening to a few customers, therefore they should try to keep the process as light and relaxed as possible, especially the customers they are looking to retain for the longer term. Help your debtors with a way out like, try and recover some portion of the amount now and the rest later, or convince them to pay via their credit card. This will give them a headway upon reaching some sort of commitment from the debtor.
Involve Decision Makers:
The debt collection agent should ensure that is interacting with someone who has the power to move the ball. During all negotiations, ensure that the conversation is with someone of authority to make decisions.
Get Accurate Customer Data:
Debt collectors should first and foremost gather accurate data about their customers such as data like if they currently have debts with other creditors, are they repaying them timely etc. Also, it is important to obtain the correct customer identification information like phone number, current employer, contact information, copy of permitted identity proof etc. Having this handy will help them carry out debt recovery process effectively and reach out to references in case the debtor turns delinquent or has disappeared completely.
The agents should be clear with regards to the rights and obligations of the debtors and the creditors right from the beginning. Get information about any documented terms of credit, credit applications or invoices. This will help them to set the recovery process straightforward from beginning to end also ensure that the stance of the creditor is strong to demand payment, in tandem with the terms agreed upon.
Multiple Payment options:
Help your debtors to make the payments as seamlessly as possible. Offer them a wide array of payment options such as credit cards, debit cards, corporate purchasing cards etc. This helps the customer save time and resources as they don’t have to deal with physical paperwork and offers the convenience to make payments from the comfort of their home through a secure network connection.
Use Artificial Intelligence:
Technology has transformed every sector and debt collection industry should also leverage its benefits. Modern conversation tools available today such as Artificial Intelligence, chatbots and self-service technology has provided the much-needed makeover to the collection process. This technology helps lenders to reach out to people via channels that are more conducive to a conversation. Agents have better chances to negotiate the debt recovery via such friendly channels as opposed to threatening phone calls and result in higher repayments.
The collection industry as a whole is in dire need of innovations to recover bad loans and improve the inefficiencies in the system. The above steps will help debt collection agents to deal with debt recovery in a better manner, streamline operations as well as adopt a customer-centric approach to the whole process!
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