3 Reasons Why Banks Ought to Outsource Delinquent Accounts To Debt Collection Agencies

By: David Montana


Banks supply much-needed services in communities of all sizes; from small towns, to major metropolitan areas. A bankís primary activities consist of 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 businesses, individuals and governments.

There are times, nonetheless, when banks have to deal with internal debt collection problems due to delinquent customer checking accounts and 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. Some other problem areas for banks are returned items, because of customers depositing bad checks. 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 nearly all banks have their own internal debt collection procedures, 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, itís important for banks to outsource these problem accounts to third party debt collection agencies.

Below are 3 fundamental reasons why banks ought to employ outside debt collection agencies for their owing delinquent accounts.

Recover Accounts With Early Intervention

Banks typically mail their own reminder statements, in order to bring a customerís loan up to date, or to reinstate checking account and overdraft privileges. They then usually 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 important 30-60 day window, are very successful with diplomatic communications intended to get the account holder re-connected with the bank and resolving their delinquencies.

As well as using diplomacy, debt collection agencies can help banks in sorting out and singling out the "soft" delinquencies from the more delinquent accounts that should be immediately outsourced. When used early enough, many of these accounts can be re-instated, 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 difficult 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 others can be outsourced to debt collection agencies quickly, before these accounts depreciate even more in recovery possibility.

The Success And Value 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 work out the account without success, hearing from a third party can frequently make the difference and provide just the motivation necessary to rectify the matter. Debt collection agencies are helpful, in acting as a tactful and unbiased third party. This can prompt past due customers to phone their bank and make the necessary measures to bring their accounts up to date.

More often than not, customers are aware that their accounts are in the red or delinquent. So theyíre not surprised to hear from the bank. And if your contact is inconsistent or infrequent, customers may behave toward their delinquent status with less significance.

It is far more serious to receive communications from a debt collection agency. Although diplomatic, a collection agency will convey the weightiness and magnitude of resolving the matter. And that failing to do so could result in a negative credit report score, as well as hurting oneís ability to open future checking accounts somewhere else.

More Cost Efficient

Its typical for banks to write off small balance accounts. And most do so 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 help significantly with recovering on these small balance accounts. In particular, some agencies charge a small fixed cost fee. These small fees are much less costly than the employment necessities, expenditures and means essential to recover on these accounts in house. Recovering on NSF checks is a further area where collection agencies are most helpful, if incorporated early in the process. And as discussed earlier, debt scoring can help banks categorize which of these accounts can gain from more in house collection efforts, and which ones to outsource to a collection agency.

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David P. Montana has written significantly and worked as an industry authority in debt collection agency services for thirty years. Read and find further useful tips and information on the subject of debt collection strategies for banks.

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