Improve Cash Flow By Training Collectors
In Technique Of Collecting
Published in Servicing Management
Buying Software? Get Advice From The 'Front Line'
By Eric J. Christeson
Some lenders and servicers may lack the resources to efficiently collect receivables. This deficiency will become more apparent as loan delinquencies continue to rise. Prompt attention to delinquencies is always important, but during a recession it's critical - provided it is done without alienating the client base.
Loan servicing managers may not be motivated to make changes in policy, personnel and equipment to meet the shift of emphasis to collection. The task calls for evaluating many elements and their inter-relationships, and may appear overwhelming at first. However, the conversion can be accomplished with a minimum of chaos if energies are focused on two items: the collector and the collection vehicle.
Help your collectors
Why do some servicers collect better than others? Are they smarter? No. It's because they are organized in ways that let collectors do almost nothing but make one phone call after another, based on relevant data that's available when needed.
Collectors work best when "on a roll" - maintaining daily momentum.
Do your collectors have an established policy to follow? A good way to initiate one is to have collectors write down questions that ask: "who, what, where, when, why and how". Answer these not with a simple yes or no, but with data culled from the servicing staff's knowledge, industry peers or trade associations. List each question and answer on a separate sheet of paper in alphabetically-indexed binders, distribute them, and follow up in a month to ensure that collectors have read and understand the policies.
Collectors are alert, fast-thinking people. Even those who begin the job without these qualities develop them with experience. They have ideas; some workable, some not. Don't brush them aside when they approach you with an idea. Try to promote such contacts, as ignoring them may trigger a negative attitude. Collectors need to be positive to perform their high pressure jobs.
Establish high standards
Help collectors establish high standards of conduct. Foster dignity and eloquence in debtor contacts. Preserving dignity - both the collector's and the debtor's - comes by responding to colorful words and phrases with firm payment demands, none laced with invective. Eloquence is language command. By reading broadly - and by looking up words not understood - collectors master vocabulary and learn to dominate without arrogance.
Teach collectors to be succinct through example:
- Stop using words like "actually" and "basically". They are disclaimers that obscure a situation.
- Eliminate "you know". If I know. why tell me?
- Get rid of redundant phrases such as: "as a matter of fact", "by and large", "to be honest with you", "what I mean is this", and others of the kind.
- Reduce the use of adverbs and adjectives. Most are unnecessary.
- Ask associates to interrupt you when you falter.
As you incorporate this word-reduction program into your own communications, have your collectors do the same. Soon, they will be making shorter collection telephone calls, but more of them. When more calls are made, more debtors will be contacted. And when more debtors are contacted, more money is collected.
Train collectors to learn all the places where debtors can obtain money to pay hack their debt. Have them remind consumer debtors that money can sometimes be obtained from credit unions, friends, relatives, hanks, whole life insurance policies, city, county, state and federal sources and others.
Collectors should know how to explain in detail. List these sources and distribute to collectors. Follow up to make sure they have absorbed the information. This will take some research and time, but it's worth it. You can hire an outside consultant to do this, but it's better done internally - and it's lots cheaper, too.
Phases of a phone call
The collection phone call has three phases: statement, response and rebuttal.
The statement phase is what the collector says to the debtor and has five steps:
- identify the debtor
- identify yourself
- ask for full payment today
- solve the problem when full payment isn't possible today and
- follow up - on time.
Phase two is the debtor's response: the reason why he or she can't pay in full today.
Phase three is rebuttal: what the collector says back to the debtor to circumvent the response. When the collector has extracted sufficient data, a payment proposal is made in simple, declarative sentences.
One-minute call
Average time for a collection call should be one minute. Where the collector feels a solid payment arrangement is in the making, extra time is acceptable.
When working to a one minute standard, the collector will usually not exceed it. The debtor will make excuses and try to steer the conversation into any area other than the payment arrangement. When this happens, the collector should move in right away with the "by-the-way", a simple device that reverts the discussion back to the payment arrangement. An example would be;
"We understand your position, Mr. Smith, and we have covered that before. Our job now is to work out payment of your balance". Another: "These things happen to people, Mr. Smith. We understand that. And our job now is to work out payment of your balance".
Have your collectors develop a half-dozen of their own "by-the-ways" and review them. The result will be shorter phone conversations, more debtor contacts and improved cash flow.
The collection vehicle
Choosing loan collection software can be an arduous task unless the decision is broken down into manageable segments. Here are some guidelines you may find helpful:
Start with a needs analysis
- How does the work flow through the collections department?
- How can the process be improved?
- What are the most pressing problems for collectors?
Look for a solution that addresses the majority of the issues; you won't find one all-encompassing solution.
Get collectors involved in the selection process
The software should be the choice of the collectors rather than senior management. If the hands-on people who must use it every day don't like it, you've wasted your money.
Watch out for hidden costs
Inquire about upgrade and ancillary costs.
- Will your hardware need modification?
- What about back-up systems and training expenditures?
Select short-term solutions
Collection technology is moving rapidly. A mini or mainframe may be powerful but start-up costs are high. Associated software enhancements or modifications may be costly as well. A PC-based system that interfaces with a mainframe or a stand alone PC network may well be a better option. Processor speed is critical with PC's.
Choose the software first
Finding a PC that is compatible with your collection software is much easier than finding software compatible with your existing hardware.
Software performance varies from machine to machine
What's dubbed "IBM compatible" is not always compatible. Get a demonstration of the software you've selected on a hardware platform before making the purchase.
The system should be expandable
With software, that means modular programs that can integrate with other software products such as loan servicing or tracking programs. You also might prefer software that can operate on a local area network (LAN) or wide area network (WAN).
Ask about other programs offered by the software manufacturer. Can complementary support programs be added to the basic software? If so, they should have identical conventions to reduce training time and costs.
Whatever the initial inconvenience of converting to an automated collection department, having to change to yet another system in a couple of years because the software package could not grow with yours and your client's loan portfolio, or could not integrate new loan products, would be ten times more exasperating.
- Is the program menu-driven?
- Does it tell collectors what to do, step by step?
- How smart is it?
- Does it have on-screen help menus?
- Is the documentation decipherable? Collectors must be able to understand the system and explain it to others. Try out the program.
- Does it put what you need on screen so you can access it as you talk to a debtor?
- Are the features useful or superfluous?
- Does it incorporate a tickler file?
- Will it provide you with information on collector activity so you can monitor and manage effectively?
How good is manufacturer support?
- Look at product literature to see how prominently the manufacturer touts customer support services.
- Is phone support available during the hours you will need it?
- Try the support line a few times at different hours. Can you get through?
Ask about the frequency of program updates and new releases. Ask why changes were made.
The right choice
The right choice of software, combined with a stable management support program, will create a sense of professionalism and aggressiveness among your collectors, a sense of urgency among your delinquent borrowers, and a significantly enhanced cash flow.
Eric Christeson is founder and chairman of Dynamic Interface Systems Corporation in Los Angeles. He is a member of the legislative advisory committee for the Mortgage Institute of California.
Reprinted with permission from Servicing Management - The Magazine for Loan Servicing Administrators