3 Integral Reasons Banks Need To Outsource Their Bad 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 bankís prime activities include lending money to businesses and individuals, as well as offering savings and checking accounts by accepting funds on deposit. A bank account is considered a must-have by most individuals, businesses and governments.

There are instances, though, when banks suffer internal debt collection issues because of delinquent customer checking accounts and loans. Some challenges include overdrawn checking, or demand deposit accounts, where customers have used up the funds and overdrawn their account. Automated teller machine (ATM) errors and losses, as well as bank teller mistakes contribute to a bankís cash items losses. Returned items, due to customers depositing bad checks, are additional 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. Despite the fact that most banks have their own in-house debt collection processes, they start to lose their efficacy after about 60 days of inactivity from their past due customers. As successful debt recovery efforts diminish rapidly with time, itís important for banks to outsource these difficult accounts to third party debt collection agencies.

Listed below are 3 central reasons why banks should employ third party debt collection agencies for their owing delinquent accounts.

Save Accounts With Early Intervention

Banks ordinarily mail their own reminder statements, seeking to bring a customerís 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 incorporated early in the process in this critical 30-60 day timeframe, are very successful with diplomatic communications intended to get the customer re-connected with the bank and resolving their delinquencies.

As well as using diplomacy, debt collection agencies can aid banks in sorting out and isolating the "soft" delinquencies from the more difficult accounts that should be immediately outsourced. Used early enough, several of these accounts can be restored and avoid being written off.A few debt collection agencies offer debt scoring as a tool. Using this powerful mathematical probability tool can help banks greatly by predicting the accounts more likely to pay, as well as the more problem accounts.Debt scoring can often be used pre- and post-default. For instance, with banking loan and/or checking and accounts, scoring is able to recommend 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 likelihood.

The Effectiveness And Importance Of Third Party Influence

When a customerís 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 encouragement needed to remedy the matter. Debt collection agencies are helpful, in acting as a tactful and impartial third party. This can prompt past due customers to contact their bank and make the required provisions to make their accounts current.

Usually, customers are aware that their accounts are insolvent or delinquent. So theyíre not shocked to hear from the bank. And if your communication is inconsistent or irregular, customers may treat their delinquent status with less importance.

Hearing from a debt collection agency is much more serious. Although tactful, a collection agency will convey the gravity and consequence of solving the problem. And that failing to do so could result in a damaging credit report score, as well as limiting oneís ability to open future checking accounts elsewhere.

More Cost Beneficial

Banks usually write off small balance accounts month after month. Part of this decision is the limited in-house collection staffing and/or the expense of going after these small balance accounts. Debt collection agencies can assist greatly with recovering on these smaller balance accounts. In particular, some agencies charge a small flat cost fee. These small fees are much less costly than the employment necessities, expenditures and assets vital to collect these accounts internally. Recovering on bad checks is another area where collection agencies are most effective, if introduced early in the process. And as discussed earlier, debt scoring can help banks identify which of these accounts can profit from more in house collection attempts, and which ones to outsource to a collection agency.

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David P. Montana has published widely and worked as an industry specialist in collection agency services for thirty years. Read and find further beneficial tools and resources concerning debt collection strategies for banks.

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