3 Major Reasons Banks Ought to Outsource Their Delinquent Receivables 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 principal 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.

However, there are times when banks confront 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 bankís 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. Though many banks have their own in-house debt collection procedures, they start to lose their success 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 delinquent accounts to third party debt collection agencies.

Listed below are 3 integral reasons why banks should hire third party debt collection agencies for their owing difficult accounts.

Recover Accounts With Early Intervention

Banks customarily send out their own reminder statements, in order to bring a customerís loan current, or to restore checking account and overdraft privileges. They then typically write off accounts after 30-60 days of delinquency, except if the balances are unusually high. Debt collection agencies, if incorporated early in the process in this crucial 30-60 day window, 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 pinpoint the "soft" delinquencies from the indeed hard-core accounts that should be quickly outsourced. When used early enough, many of these accounts can be re-instated, preventing having to write them off.Some debt collection agencies provide debt scoring capabilities. Using this powerful mathematical probability tool can help banks greatly by predicting the accounts more likely to pay, as well as the more delinquent accounts.Debt scoring can usually be done pre- and post-default. For instance, with banking loan and/or checking and accounts, scoring will 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 likelihood.

The Importance And Effectiveness Of Third Party Influence

When a customerís checking or loan account goes into overdraft or default standing, 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 inducement necessary to correct the matter. Debt collection agencies are helpful, in acting as a diplomatic and impartial third party. This can encourage past due customers to phone their bank and make the required arrangements to make their accounts up to date.

Typically, account bearers know when their accounts are insolvent or delinquent. So theyíre not surprised to hear from the bank. And if your contact is lacking consistency or irregular, customers may behave toward their delinquent status with less significance.

Being contacted by a debt collection agency has far more impact. Though diplomatic, a collection agency will impart the gravity and consequence of settling the problem. And that failing to do so could result in a negative credit report rating, as well as limiting oneís ability to open future checking accounts somewhere else.

More Cost Beneficial

Its typical for banks to write off small balance accounts. And many do so month after 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 assist significantly with collecting on these small balance accounts. In particular, some agencies charge a small flat cost fee. These small fees are much less costly than the staffing requirements, expenditures and resources necessary to recover on these accounts internally. Collecting on NSF checks is another area where collection agencies are most valuable, if incorporated early in the process. And as discussed earlier, debt scoring can help banks distinguish which of these accounts can gain from greater in house collection attempts, and which ones to outsource to a collection agency.

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David P. Montana has published much and worked as a business expert in debt collection agency services for thirty years. Study and learn additional useful tools and resources on the subject of debt collection strategies for banks.

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