Maximising performance in sub-prime collections, written for Motor Finance January 2010
Feb 1, 2010
Maximising Performance in Sub-Prime Collections
A dearth of funding in the sub-prime market has meant that maximising collections performance has become of paramount importance to the remaining players in the industry.
For many the cessation of new business has seen the level of scrutiny on collections performance increase to previously unparalleled levels and this is set to continue. Several long established and successful sub-prime motor lenders have been reduced to little more than collections operations or have been housed within servicing operations to cut costs until the lending climate improves. Some of these brands are too strong, and the profit opportunity too significant, for the hiatus to last much beyond 2010.
Yet, whilst collections managers may not always welcome this increased scrutiny, this should be seen in a positive light. For too long, collections has been seen as the poor relation in many businesses and as an area where innovation and investment have always been behind sales in the pecking order.
Now collections is very much at the front of the queue and performance can and does determine the future success and profitability of the overall business. Leaving no stone unturned in our efforts to recover cash has become of paramount importance and this should include several basic concepts.
Call Centre and Payment Technologies
Excellent contact centre technologies are of paramount importance to any collections operation. Ideally this should comprise of a predictive dialler, best time to call software, SMS capability, Interactive Voice and payment technologies providing the customer with varying forms of interaction and opportunities to pay. If possible this should include a web-based payment gateway and automated payment hotline to help maximise efficiency and to ensure that your well-trained negotiators spend their time talking to more problematic customers and not those which will self-cure.
Accurate Customer Segmentation
There is now a wealth of data available from Credit Reference Agencies (CRAs) and other companies which can significantly enhance our collections methodologies, particularly when combined with commonsense data from our own databases. Monitoring and actively pursuing customers who display changes in behaviours, such as moving off direct debit, or changing their address, is important. These can be key triggers for delinquency since they are often a symptom of major life events taking place in the background. Sticking close to these customers and pro-actively counselling them on the importance of maintaining their repayments on their car ahead of other unsecured debts can ensure efficiency savings further through the process. Data from CRAs can also help segment the lazy payers from those who simply cannot pay and for whom a different treatment may be required and by accelerating the process, time and money can be saved.
Reconnection Solutions
Too often this aspect of sub-prime motor finance is overlooked. By their very nature, sub-prime debtors can often exhibit more unpredictable payment patterns and this makes the importance of having a field reconnection facility absolutely paramount. Field services fulfil many purposes such as trace, trace validation and cash collection but, most importantly and simply, can help put you back in instant touch with your debtors. The scarcity of accurate debt advice available to consumers makes it inevitable that some will simply try to dodge all contact in the hope that things will get better quickly and they can thereby avoid the repossession of the car. For many, simply being re-connected with a lender’s call centre via a field agent’s mobile whilst on their doorstep can provide a much needed opportunity for conversation and last minute payment arrangements. For a lender this service is invaluable where normal contact centre methods have failed.
Effective Recovery Options
Inevitably some customers will not pay and for those customers effective asset recovery options are fundamental to the success of any sub-prime collections operation. A full panel of cost effective agents should be retained, capable of servicing cases of differing difficulty across the UK. The ability to respond quickly and efficiently and to provide a professional service is essential. The ability to escalate cases rapidly for Return of Goods work, where required, is also essential in sub-prime. With the proliferation of consumer web sites, word soon gets around if a particular lender is seen as a soft touch and it is important to make every commercial effort to get your car back wherever possible.
Whilst by no means an exhaustive guide to sub-prime collections, these four basic pillars will form an effective foundation for your operation. When combined with a well-managed, well-motivated and highly-trained collections team, these basic concepts should ensure that success in sub-prime motor collections is achievable.
Final Thought
My last point is perhaps the most important reason why you should succeed in sub-prime motor collections in this current climate – for the first time in 15 years, there genuinely is no alternative for customers if they have their car repossessed. The halcyon growth days of sub-prime, where credit was readily available, even to those who had just suffered repossession, are gone. It is our job in collections to ensure that those customers, who need a car for their livelihood, know that it needs to be paid for on time and in full. By doing our job, being transparent, treating the customer fairly and highlighting this fact, our collections results should improve accordingly.
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