Businesses of all kinds, otherwise keen to extend credit to eligible customers, sometimes think twice about the whole proposition because of collections.
For many businesses, facilitating sales by means of installment payments makes perfect sense. After all, “buy now, pay later” is a tried-and-true strategy for moving bigger-ticket items and services, both in retail and B2B settings. But lending requires a systematic approach to collections. And some business owners fear rampant delinquency or the prospect of alienating customers in the process of collecting from them.
But these concerns don’t actually hold much water.
For one thing, consumer delinquency as represented by missed payments on commercial-bank-issued credit cards is lower in 2021, by far, than it has been since the US Federal Reserve started tracking this data point in 1991. Similarly, the delinquency rate on commercial-bank-derived consumer loans hasn’t been lower since 1986.
Indeed, these days, “despite an unprecedented 18 months since the pandemic was in full force and many Americans were sent home, financial wellness continues to be on the rise,” consumer-credit-rating agency Experian notes at the top of its latest “State of Credit” report. “Consumers continue to manage credit well and the average credit score climbed seven points since 2020 to 695, the highest point in more than 13 years.”
Collections is another customer touchpoint, so make the most of it
Further, makers of best-in-class financing software put as much time, effort, and ingenuity into collections and reporting as they put into building efficiencies around vetting applicants in the first place.
“Nobody wants to make a bad loan,” says Elena Ionenko, co-founder and head of operations at Turnkey Lender, a pioneer in the lending-technology space that has clients in more than 50 jurisdictions around the world. “And while our software uses traditional and alternative means — including artificial intelligence — to stave off risky applicants at the underwriting stage, there is no absolute proof against delinquency.”
But, Ionenko underlines, “within parameters, delinquency is predictable” and therefore manageable. “We know where student-loan delinquency is,” she says. “It’s high — like I think 18% in Q2 this year. But consumer debt? Commercial debt? Those are in the realm of 1%, 1.5% in some categories — figures dwarfed by the 10%-plus rate of goods returned to US retailers in 2020.”
In short, in retail settings, lost sales from returns outweigh the potential for loss from bad debts. “And retailers don’t run from returns,” says Ionenko. “They manage them as an integral part of doing business and view the returns process as opportunities for points of contact they can use to improve consumer experiences.”
In Inonenko’s view, “Businesses can and should view collections through the same lens,” she says. “Collecting on debt, viewed as a seamless part of ongoing maintenance for active accounts, is an opportunity for positive engagement.”
In fact, state-of-the-art financing software gives businesses six specific advantages that make collections easier and accretive to their understanding of the markets they serve.
1.Plan strategies for all collection phases
Messaging around standard collections is different from the wording that makes sense for accounts in or near arrears.
2. Restructure interest payments
The ability to set and reset interest rates can be the difference between collecting and not.
3. Track promises to pay
Keeping track of responses through integrations between the financing platform and messaging applications can help hone responses and facilitate effective collections.
4. Get easy access to customer history
Equally, integrations ensure that everything about the client’s history with the business is on hand for help with collections messaging.
5. Leverage phone scripts for all phases of collections/communications
Knowing what to say and when to say it are vital components of the collections process for truly effective financing software.
6. Classify debt
Different classifications of debt — whether by amount, duration, or any other characteristic — is important both for collections and strategic planning.
And of course, reporting is closely aligned with collections and provides analytics for deeper insights on the performance of a company’s loan portfolio.
Loan reporting features every organization needs to succeed
For example, TurnKey Lender comes preconfigured with an array of reports, templates, and interfaces, including:
- Accounting and customer details
Ready to use in TurnKey Lender or as an exported file, the report lets you easily track loans, days past due, commissions, fees, outstanding amounts, terms, and more.
- Accounting cash flow
Analyze accrued amounts, maturity dates, fees, and repayments.
- Bank account statements
Pull bank statements data and get a more meaningful insight into a client’s creditworthiness.
- Credit risk report
Conduct portfolio analysis by state, risk level, or delinquency buckets.
- Business performance dashboard
A state-of-the-art reporting page that gives you an overview of the entire lending business at a glance.
- Originators and underwriters performance reports
Analyze originators’ or underwriters’ performance based on the metrics specifically tailored to their position.
- Payment information
Review the payments made both from you to the borrowers and vice versa.
- Customer data
Pull customer data in bulk or easily configure custom reports with data points you’d like to export.
- Executive report
Present data in form of easy-to-understand diagrams with the ability to drill down into specifics.
- Expected payments
Get a list of all the expected payments for a regulator or a stakeholder.
- Loan data
Analyze all available data on the loans in your system.
“Businesses and organizations, from dental clinics and retail stores to banks and capital-equipment providers — even international trade factors — come to us for one reason: they want to extend credit securely, fairly, and economically,” says TurnKey lender’s Ionenko. “But they soon come to find our financing platform helps them get paid faster, manage cash flow, trim financing costs, and reduce write-offs on bad debt — in addition to the ability to pinpoint and take action of delinquent accounts swiftly and accurately.”