For many credit unions, the days of member loyalty expressed in steady, dependable repayments seem to be narrowing. The situation mirrors the financial services industry as a whole. There are more delinquent accounts, more members whose past activities weren't predictive of this, an increased difficulty in communicating with members, and a decreased ability to cure accounts. All of these factors have led to increasing rates and charge-offs.
In this unstable environment, the ability of credit unions to take action now, using consistent portfolio reviews to monitor accounts, is crucial. In an economy, where many consumers are living paycheck to paycheck, it is even more critical for credit unions to focus on member-centric collection strategies and employ best practices. These strategies will provide the best opportunity for credit unions to retain members, educate them on fiscal responsibility, and in the long run, strengthen their loyalty to the credit union that saw them through a difficult time.
Whether or not credit unions have changed the name of their collections departments to be more "member friendly," evaluating and adjusting the processes and tools in this department is essential to success in a troubled environment. These key objectives are in play for most credit unions:
- Optimize contact and negotiation strategies
Feed collections operations with up-to-date contact information and train collectors to have the right conversations, defined by member segment.
- Maximize productivity
Prioritize accounts to align their underlying value with resource availability. Ensure that collectors are talking to the highest percentage of the most valuable accounts during their work hours.
- Manage expenses
Use data which enables efficient resource utilization.
Once objectives are set, the following best practices should be utilized for a credit union's collections department in this dynamic environment:
- Scoring and analytics
Understand the value of the accounts in portfolios in the delinquent account environment. Segment members and apply the best treatment strategy for each. Partner with a trusted provider of data and analytics to enjoy both efficiency and effectiveness gains.
- Trigger for changes in member files
Implement a process that allows for timely notification of file changes in order to promptly take action to assist members.
- Optimize collections processes and strategies
Attention must be paid along the continuum. Vigilant account monitoring to indicate need for pre-delinquent intervention, contact management strategy, account prioritization and segmentation, and execution of a robust cure strategy subsequent to recoveries are processes which must be mastered. Using the correct tools through a seamless process can provide for strong operational efficiencies.
Make sure the collections "approach" in this economy continues to fit the member-owned style of each individual credit union. Collections departments, more than any group, need to make sure they know the vision of the credit union and membership they serve. At the same time, collectors should be trained in best-practice negotiation techniques and flexible strategies for different segments of accounts.
Collections will continue to be a challenge in the industry for some time to come. Focusing resources and analytical approaches can contribute to the long-term success of the credit union, in turn, better serving members. Collections is not a bad word in this economy, but, instead, is part of an overall member-focused repayment plan and fiscal responsibility task. Credit unions should pause and review methods to strengthen this area of business and better serve members going forward.