3 Important Reasons Why Banks Should Outsource Their Overdue Accounts To Debt Collection Agencies

By: David Montana


Banks offer many needed services to communities of all sizes; from small cities, to major metropolitan areas. A bank’s main activities include lending money to organizations and individuals, as well as offering savings and checking accounts by accepting funds on deposit. A bank account is considered crucial by most companies, individuals and governments.

However, there are times when banks deal with internal debt collection problems due to overdrawn checking accounts and past due loans. Some challenges include overdrawn checking, or demand deposit accounts, where customers have depleted the funds and overdrawn their account. Automated teller machine (ATM) errors and losses, as well as bank teller errors add to a bank’s cash items losses. Returned items, due to customers depositing bad checks, are further sources of pain for banks. Delinquent loans are another major area of concern for banks. A third major concern for banks is delinquent consumer and business loans. Even as nearly all banks have their own in-house debt collection processes, they start to lose their success after about 60 days of inactivity from their past due customers. For the reason that successful debt recovery efforts diminish rapidly with time, it’s important for banks to outsource these delinquent accounts to third party debt collection agencies.

Listed below are 3 fundamental reasons why banks ought to hire outside debt collection agencies for their unresolved problem accounts.

Recover Accounts With Early Intervention

Banks customarily mail their own reminder statements, seeking to bring a customer’s loan up to date, or to reinstate checking account and overdraft privileges. They then typically write off accounts after 30-60 days of delinquency, unless the balances are abnormally high. Debt collection agencies, if brought in early in the process in this crucial 30-60 day timeframe, are very successful with diplomatic communications intended to get the customer re-connected with the bank and resolving their delinquencies.

In addition to tactful customer contacts, debt collection agencies can help banks sort out and better distinguish the "soft" delinquencies from the really hard-core accounts that should be quickly outsourced. When used early enough, a large amount of these accounts can be restored, preventing having to write them off.A few debt collection agencies offer debt scoring as a tool. By using this mathematical probability tool, they can help banks calculate which accounts are more likely to pay and which are the more problem accounts.Debt scoring can usually be done pre- and post-default. For example, with banking loan and/or checking and accounts, scoring can predict which accounts to work internally, before they default. The rest can be outsourced to debt collection agencies promptly, before these accounts depreciate even more in recovery probability.

The Success And Significance Of Third Party Impact

When a customer’s checking or loan account goes into overdraft or default status, and after the bank has contacted the customer to resolve the account without success, hearing from a third party can frequently make the difference and provide just the incentive needed to remedy the matter. Debt collection agencies are helpful, as a neutral and diplomatic third party. This can encourage past due customers to contact their bank and make the required measures to bring their accounts up to date.

Typically, account bearers are aware that their accounts are insolvent or delinquent. So they’re not surprised to hear from the bank. And if your communication is inconsistent or irregular, customers may regard their delinquent status with less significance.

Hearing from a debt collection agency is much more serious. Although diplomatic, a collection agency will convey the seriousness and importance of settling the problem. And that failing to do so could result in a negative credit report score, as well as hurting one’s ability to open future checking accounts elsewhere.

More Cost Efficient

Banks customarily write off small balance accounts every month. Part of this decision is the limited in-house collection staffing and/or the cost of going after these small balance accounts. Debt collection agencies can help greatly with collecting on these smaller balance accounts. In particular, a few agencies charge a small fixed cost fee. These small fees are much less costly than the employment requirements, expenditures and resources vital to recover on these accounts internally. Recovering on NSF checks is a further area where collection agencies are most efficient, if introduced early in the process. And as mentioned earlier, debt scoring can help banks distinguish which of these accounts can gain from more in house collection attempts, and which ones to outsource to a collection agency.

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David P. Montana has written greatly and worked as an industry advisor in collection agencies services for three decades. Study and find more helpful tips and information regarding debt collection strategies for banks.

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