Collection
Analytics

While each industry experiences the problem of ineffective collections differently, it has similar impacts, which reduces the companies’ value:

• Low profitability, high losses and increased cost of services
• Undifferentiated collections actions leading to harsh treatment of good customers
• A lower portfolio quality caused by defection of good customers

In conclusion, ineffective collections is a key threat to the business. No industry is spared of this problem, and its symptoms are often not acted on before it hurts the bottom line of the business.

Traditional approach is to increase the effort of collections as the age of the debt increases. This is not an effective approach. Our collection analytics capabilities help the banks to enable it to devise targeted approach rather than a flat strategy across the portfolio by use of predictive analytics

1. Risk Based Collection Scorecard - Help the client by developing the predictive risk based collection scorecards. Risk based collection scorecards focus on weak customers irrespective of the age of the debt to continuously refine the collection strategies. . The predictive collections models discriminate the accounts that had higher likelihood of regular payments from the potential bad accounts to enhance the efficiency of overall collection efforts of the bank, while simultaneously reducing the overall cost of collections.

2. Collection Strategy - Support in devising the effective collections strategies based on the risk score of the borrower. Our clients use these predictive models to divide the overall portfolio into different segments and use this input to design their strategies for follow up with borrowers, such as SMS, IVR and Outbound calling, or direct contact, to improve the overall collections.

3. Credit Bureau Data - In case of availability of Credit Bureau data, we use the same in augmentation of the internal risk scores for effective collections efforts and strategies. As it helps in appropriately identifying the risks with new relationships as well as in understanding the risk behaviour of the borrowers with other creditors for long term relationships.

The objective of the risk based collection scorecard is to generate a predictive score that will be used to distinguish the potential good accounts (which have higher likelihood of payments) from the bad accounts for early delinquent, i.e. bucket 1 i.e. < 30 DPD and bucket 2 i.e. < 60 DPD, portfolios.

There are typically multiple scorecards developed for covering all type of borrowers of the client based on portfolio specific assessment of delinquency status, such as pre-delinquent, early delinquent & late delinquent.

Key objectives of the scorecard development are

• Enhance collection efficiency
• Improve overall collections
• Reduce collections cost

1. Strategies for Pre-delinquent Cases

When using scores to set a collections strategy based on risk, the actions available prior to a customer becoming delinquent focuses on the very few cases predicted by low scores to be far riskier than the typical pre-delinquent account. These cases can be preventively managed with a restrictive limit monitoring and authorisations strategy. Preventive service calls can be made to remind the client of payment conditions as well as checking contact information. A strategy based on debt age would offer few strategic options and typically would assign no preventive actions on the predelinquent cases.

2. Strategies for Early- delinquent Cases

When using scores to set a collections strategy based on risk for the early arrears then the actions focus on three main goals:

• Identifying high scoring customers (self-cures) to minimise collections effort and cost and to avoid upsetting good customers. “No actions” or “Automated customer service actions” can be applied to these customers
• Identifying low scoring cases (e.g. hard cases, skips and fraudsters etc) requiring quick, early action. Skip tracing, early litigation or outsourcing to a DCA may be the optimal actions for some of these cases
• Identifying the cases that respond to active pressure from collections agents in order to pay. These cases are the ones that should be contacted consistently and persuasively to make the debtor pay as much as possible A strategy based on debt age would offer limited strategic options.

3. Strategies for Late-delinquent Cases

These cases have already gone through the normal collections process without full repayment and are therefore no longer customers. The account/services are cancelled and remaining actions are performed with a terminated customer relationship. Self-cures are unlikely at this stage and common actions taken would be escalated actions such as litigation, going to court, or sale of the receivable if any internal action is no longer profitable. The use of scores for late arrears and defaults tend to concentrate around the following goals:

• Identifying the highest scoring cases for collections agents to focus on collecting on these. Most of these cases are not going to be collected so collections actions should focus on the cases where there is most likelihood of collecting
• The mid to low scoring cases are unlikely to be collected without an extraordinary amount of effort. These cases may be sold off to debt collection agencies as early as possible to gain a better result
• The price of receivables (or the expected collections performance of the debt collection agency) can be benchmarked with the use of the Credit Bureau Scores