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Mastering Debt Collection: A Quick Handbook for Improving Your Recovery Rate

An efficient debt collection process maintains a steady cash flow while mitigating cash crunches. When working with the right strategy, it automates payment collection on time giving businesses financial stability and buffer cash to plan future expenses easily.

A streamlined debt collection system is built on the pillars of consistent communication, easy payment options, and centralized data. Moreover, when businesses build an efficient system, it eliminates bad debt, leading to financial success. 

Let’s discuss the key aspects of mastering debt collection and how to ensure you have enough cash flow without losing customers and their business. 

Strategies for Increasing Collection Efficiency

No business wants to suffer from unpaid and overdue invoices. Chasing customers and clients to complete their invoices is a time-consuming and wasteful process, which can be streamlined with the right strategies targeting effective communication, negotiation, automation, and payment processes. 

  • Communication Should Be More than a Simple Exchange of Words

Ditch the one-size-fits-all approach and segment customer communication based on severity, age, and customer profile. Craft personalized messages for each segment and every specific situation while factoring in their consequences. 

To achieve collection efficiency, demonstrate your empathy with the customers. Don’t restrict yourself to sending emails; rather, use omnichannel communication and reach your customers through their preferred channels. 

Train your callers to hone active listening and empathy. Understand the customer’s reason behind late payments and tailor solutions to accommodate them to the farthest extent possible. 

Aggressive language alienates the customers, which can further increase bad debt. 

  • Negotiate to Create Win-Win Situations

Effective negotiation can take your debt collection processes to the next level and present your business as customer-centric. Start negotiating and discussions early on before the accounts are delinquent. Present restructuring options and extend deadlines or even reduce the payments. 

Sometimes, motivating customers with early payment rewards can prompt further action and reduce your debt collection woes in the future. You can also offer flexible options like extended installment plans and hardship programs. 

Set flexible boundaries for the debt collection team allowing them to negotiate while presenting a range of solutions and reduce NPA accounts. For effective negotiation as well, the customer relationships and debt collection team must possess active listening skills. 

On the whole, negotiate to ease the customer’s experience while ensuring bank recovery rather than deterring them with legal actions and other measures. 

  • Leverage AI and Automation to Streamline Collection

Automation can play an essential role in streamlining the debt collection process and achieving financial success; here’s how. Using automation to send reminders and escalate overdue accounts while scheduling follow-ups frees collectors from handling other, more complex cases. 

You can leverage AI-powered chatbots and train them to handle routine inquiries and redirect customers to payment pages, ultimately reducing pressure on debt collectors. 

Moreover, it's easier to predict customer payment behavior based on past transactions using AI analytics solutions. This means you can intervene early on to address at-risk accounts and implement intervention strategies. As a result, it will lead to risk reduction and reduce NPA. 

  • Frictionless, Diverse, and Secure Payment Processes

Making payments should never be a hassle for your customers and clients. Integrate multiple payment options, including online payments, wallets, direct debits, wire transfers, or in-branch options. A lack of payments only gives the customers a potential reason to delay payments.

Ensure superior security with all the online payment methods and showcase the security features to your customers. Lastly, offer auto-payments and ACH options to your customers to automate payment collection on a fixed date. 

Ways and Means of Reducing Bad Debt

Discuss strategies for establishing credit policies, conducting credit checks, and maintaining customer relationships to reduce the risk of bad debt.

Proactive utilization of data and automation technology can streamline how banks collect debt, but to reduce bad debt, they need different strategies. Bad debt is the result of the financial woes of your customers, and some are due to willful default. While it's customary to take a lenient approach when your customers are going through financial troubles, adopt proactive strategies to stop willful default. 

Here are some strategies to reduce bad debt;

  • Credit Policies to Filter Potential Customers

Your credit policies are your safety net to keep out bad debt. In addition to running generic credit checks, go for dynamic credit policies that incorporate risk assessment models. Your policies must account for the potential customer’s income stability and spending patterns.

Segment them based on their risk profile, requirements, and behavior as you account for these things. Account for the cash flow trends and savings while feeding the customer’s available data to an AI model to prejudice repayment potential. 

Create a system of checks and balances to pre-qualify applicants and personalize their credit limits to ensure you don’t incur a bad debt. 

  • Run Credit Checks to Identify Repayment Capability

Don’t limit customer credit checks to the credit score only. Go beyond the rudimentary credit checks and gain a holistic view of the customer’s profile. You can check their payment history of previous loans, utility bills, and social media activity. 

These checks will present a holistic view of the potential customer, and as you match them up with fraud detection solutions, it will become easier to identify suspicious activities and red-flag the customers. 

Next, conduct employer verification to confirm income stability and check inflated pay slips. Even after the loan is disbursed, run checks on the customers throughout the repayment term. Identify changes in their income, employment status, and spending patterns to intervene and prompt corrective action. 

  • Maintain Cordial Relationships with Customers

Anyone can go through a rough patch in their life, which does not essentially mean they are willful defaulters. Instead of becoming a loan shark, adopt a customer-friendly approach. 

To prevent bad debt and enhance collection efficiency, clearly communicate credit policies and interest rates while highlighting the potential consequences of delinquency. Using AI, you can predict risks, use this information to take proactive action and offer debt management resources to customers while running intervention programs. 

Help struggling customers with personalized repayment options and loan restructuring and get them back on track. 

Real-Life Success Stories and Case Studies

Businesses and banks are evolving with the trends to ensure they are not incurring bad debt and are able to streamline their collection system. Here are a few examples of how certain businesses use the strategies mentioned above. 

  • Astute Management Solutions used Elision’s Dialshree, an omnichannel call center solution to automate customer data collection and simplify grouping collection. As a result, Astute Management Solutions were able to eliminate 100% of manual errors and recorded a 82.57% increase in collection.
  • AU Bank experienced multiple challenges including inbound and outbound calling options, a lack of SMS broadcasting, and lack of web chat options with customers. After consulting with Elision, we recommended and set up Dialshree for the bank to help them optimize their communication with the customers. This resulted in 100% increase in customer and agent interaction, 82.31% increase in loan debt collection, and boosted agent productivity by 79.26%. 

Leverage Technology to Improve Collection Efforts

Mention supplementary tools and technologies that can enhance collection efforts, such as debt management software or analytics solutions.

In addition to using the tips and techniques shared above, use technology to your advantage for streamlining collections and reducing bad debt. Here are a few suggestions;

  • Debt Management Software: This software streamlines repetitive tasks like sending reminders and escalating delinquent accounts. They generate collective reports and also have omnichannel communication systems. You can also use them to enable seamless and secure online payments, encouraging faster payment settlements.
  • Better Insights to FOS and PTP Segmentation: Leverage technology to provide field officers with accurate, updated, and real-time insights while sharing information on delinquent accounts with a Promise to Pay status. Businesses can leverage Elision’s advanced debt collection module to do the same and provide the FOS team with better insights, updated payment details, real-time information through email and SMS to create a smooth communication channel.It will be better to channelize the PTP customers for using payment gateways for quick payments, making debt collection easier.
  • Artificial Intelligence: AI-based chatbots can free up the customer service and debt collector’s time to handle routine inquiries, make IVR calls, and help customers make payments. With sentiment analysis integrated into the system, you can analyze customers' sentiments through text, giving debt collectors the opportunity to adapt communication styles and personalize interactions.Elision provides AI Super Agents, an advanced AI-driven module to help agents resolve customer issues and maintain 24/7 communication. These AI-based communication modules can imitate a human’s tone and voice to create the same impact fostering trust and customer loyalty.

Streamline Customer Communication and Collection

Debt collection efficiency and debt reduction are the critical aspects of achieving financial success. Any business lending customers money may face delinquencies and defaults, which can hamper their business growth. 

Achieve collection efficiency with streamlining the collection process by changing the communication and negotiation processes while automating repetitive and easy tasks. Reduce bad debt with adaptive credit policies, dynamic credit checks, and improving customer relationships. 

While integrating these systems, Elision’s DialShree omni channel communication system makes it easier to communicate with your customers and improve customer engagement.

Let’s Connect so that we can better understand your needs and execute an omnichannel communication strategy tailored to your requirements. 

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