Debt collection plays a crucial role in the loan industry. Many individuals and companies take a loan from banks or other financial institutions but are unable to pay the full amount back in time.
This brings debt collection agencies and organizations into the picture as they are responsible for making the borrower pay back the loan to the lender. The debt collectors charge a small percentage of the loan amount that the borrower pays to the loan provider.
Modern debt collection
Modern debt collection methods are more effective than they used to be. These methods follow personal debt collection guidelines that streamline the entire process and are beneficial to both the debtor and the collector. Some of the modern techniques to collect a debt from borrowers are:
Digitized collection strategies
Segregating defaulter customers was a big issue in the old debt collection process. With the advent of software applications and debt analytics, the business debt collection agencies are now flagging the delinquencies based on various factors like credit limit, the percentage of loan outstanding, credit history of the company or the individual, total amount due, and so on.
Auto-generation of customer statements
Gone are the days when debt collectors sent agents to companies and houses of individuals to make them pay the loan amount back. Now, payment notifications and customer statements are sent to the borrower via their preferred choice of contactssuch as emails or SMS. Borrowers can pay the money using the debit or credit cards, net banking, or follow the age-old process of writing a cheque in favor of the financial institution that gave the loan.
Managing collection activities
The first strategy of modern debt collection is segregating the customers. After that, the database will personalize a further plan to collect the debt according to different customer categories. They can follow up on the customers through the relevantcourse of actions such as periodic dunning, phone calls, friendly reminders, or sometimes, a personal visit of an agent. All these details starting from the number of text messages sent to the borrower, their reply, the conversation on the phone, etc. are tracked on a dashboard. There are separate files for every customer to maintain transparency and also understand what the next step should be to collect the debt.
Handling dispute settlements
The modern debt collection system believes in the peaceful settlement of disputed debts. That is why the agencies review the credit history of the customer carefully before initiating a dispute. It has already streamlined the grievance redressal process as it improves customer goodwill to a great extent.
Importance of technology in debt collection
Technology has successfully replaced the traditional and inefficient debt collection process. Their contribution to the loan industry is immense. Some of its benefits are as follows:
- Optimizing work distribution and reducing processing time.
- Automatic identification of disputed debts.
- Improved compliance with regulatory requirements.
- Flexibility in the payment options.
- Minimizing the mistakes made during manual entries.
Innovation and technology were long overdue in the loan collection industry. With the advent of modern debt collection systems, financial institutions can now breathe a sigh of relief because they don’t have to write off bad debts anymore.