How Automation Improves the Debt Collection Process?

The advent of technology has helped banks and financial institutions automate almost all of their business processes. For these entities, lending is one of the vital cogs in their revenue model. Hence, debt collection plays a significant role in deciding if the company is recording profits or losses over a given timeframe. It directly impacts a lending entity's overall revenues. 

Growing debt consumption has made it even more crucial for lending institutions to implement an efficient debt recovery system. Recovering debt is easier said than done. It is a complex process and requires lenders to provide borrowers with numerous chances to repay the availed debt before legally being allowed to initiate any punitive actions. 

The lenders remind their borrowers of the due date to make payments through numerous channels such as SMS and emails. These communications are sent well before the due date, and clearly ask the borrowers to maintain a sufficient balance in their account. Lenders generally relied on third party agencies to recover debt from the borrowers. 

External dependencies result in increased costs to the company and will have to continually follow up with them to track the recovery process. To make the lives of lending institutions easier, debt collection system has come into existence. A debt collection system alleviates the need for the lender to be dependent on third parties. 

What is a Debt Collection System?

It is a software which allows lenders to keep track of the loans disbursed and follow-up with their respective debtors, forecast, and prioritise debt collection and recovery. A debt collection system is integrated typically with enterprise resource planning (ERP) of the lender, and loan management system will help the lenders to get an overview and hold over the debt management procedure. It basically automates the debt collection with the help of the latest technology. 

But, the question here is, how does automation improve debt collection? The answer is simple. First, there are no external dependencies. Second, having a debt collection system requires minimal efforts and follow-up. These parameters make the debt recovery process more cost-effective. 

Here is how automation helps in improving the debt collection process:

1) Increased Responses

By having chatbots and outbound calling systems, lenders can reply to the borrowers' queries in a timely manner. If the borrowers are not happy with the automatic responses they receive, they can then reach to the customer support team. By having this system in place, the burden on the customer support associates reduces drastically as most of the borrowers' queries can be found without having to reach out to a customer support associate. Furthermore, it would help if there is an option of asking the borrower what exactly he or she is looking for before connecting to an associate. If there is any piece of information readily available which answers their query, then the borrower can be directed to read through that information. If they still don't have their query answered, they can then be connected to an associate. 

2) Automatic Payment Reminders

They say no borrower ever forgets the amount he or she owes to someone. However, reminding the borrowers of the payment due date is only going to help the lenders' cause as they can keep their consumers alert and ask them to maintain a sufficient balance in their account. Furthermore, having phone prompts with minor changes is an inexpensive way of driving the payment reminders for the lenders. This helps in having a more effective mental engagement and letting borrowers know that the payment due date is around the corner. If by any chance a borrower misses a payment, then the lenders can follow-up with them through an automated outbound call which prompts the user to select their desired option. For instance, the options on the phone prompts can be as follows;

• If you are ready to make a payment now, then press '1'

• If you are going to make a payment by the end of the day, then press '2'

• If you are going to make a payment by the end of the week, then press '3'

• If you are not ready to make a payment any time soon and need assistance, then press '4'

Based on the option chosen by the customer, lenders can send nudges and reminders accordingly.

3) Optimise Resources

The tools driven by artificial intelligence (AI) can analyse the collection pattern and trend to find out which associate is good at recovering what kind of debt and then evaluate the time spent by an associate on customer accounts. This paves the way for quicker resolution of accounts and helps lenders to focus more on those accounts from which a positive result is expected. 

4) Ensures Compliance

In the worst-case scenario, if a lender has to initiate legal actions against a borrower, having an automated debt collection system ensures that the lender is complying with the relevant laws and procedures before taking any further step. If a particular step under a given law is not completed, then the lender will not be allowed by the debt collection system to take the next step. The system will let the lender know the procedure to be followed to progress to the next step. Therefore, having a debt collection system ensures that the lenders are complying with all the laws that govern lending and debt recovery.              

Conclusion

The COVID-19 pandemic has brought several changes in the way companies go about their business. Today, automation is ruling the software industry, and it is just a matter of time that even the finance and fintech sectors are gripped by the automation trend. The banks and financial institutions were flooded with queries by the customers during the financial crisis induced by the ongoing COVID-19 pandemic. If the lending institutions had automated their debt collection system, they would not have undergone a stressful scenario of answering a slew of questions thrown up the customers. This would have surely taught them the importance of automating their debt collection system for their own good.