It’s safe to say that the collections business has evolved. Not only the technology that lenders use to collect a debt and reach borrowers — i.e. the migration from land lines to cell phones — but consumers have evolved as well. They are more knowledgeable about their rights; by doing a simple online search, they can find out all of the intricacies of the CFPB, TCPA, and FDCPA.
And while delinquencies are not what they once were thanks to an improved economy, America, and in turn, lenders, are not completely financially stable and immune from delinquency issues. Although the median household income has improved with economic expansion over the last six years, it’s still down 4.5% from what it was shortly after the Great Recession began in January 2008, according to Advisor Perspectives. The fact is many families are still struggling, and 34% say that, financially, they are worse off than they were before the recession.
So, how do collectors overcome objections from more sophisticated delinquent borrowers, and find a solution that both the borrower and the lender can accept? The goal should be to find a mutually beneficial solution that minimizes your credit union’s loss, while building and preserving rapport with troubled borrowers. While there is no silver bullet to collections, and every borrower situation is unique, this three-tiered approach is a good roadmap to help collectors be more successful.
Step One: Research
Before you speak to a borrower, you should do your homework. Knowing the borrower’s payment history will give you an idea of how to approach the situation. Do they have a history of late payments and NSFs? Pull their credit report to find out if they are paying their other bills, have escalating debt, an increase in delinquencies, or if they are using a higher percentage of their credit lines. Having a better picture of your borrower’s situation can help you get to the bottom of the matter more quickly when you do get on the phone with them. If your borrower is in financial trouble, you want to be able to have as many facts as possible so that you can work together to find a solution.
Step Two: Effective Communication
Now that you have some background information on your borrower, you’re ready to talk to them and have them tell you their story. When you are talking to your borrower, utilize effective interviewing techniques — ask them questions to help validate an accurate reflection of their current situation. Ask open-ended questions and avoid questions that can be answered with “yes” or “no.” The key is to keep them talking and give yourself an opportunity to listen carefully and observe clues that will help you determine the root cause of delinquency.
Step Three: “Close the Sale”
Collections is a lot like sales, and it’s important for the collections department in your organization to have a strong sales culture. In order to do this, like other sales positions, it’s important to build rapport and trust with each debtor in order to build a collaborative relationship with the goal of establishing a solution. There are five steps to sales success:
Listen to gain an understanding of the debtor’s situation.
Listening to your borrower’s situation will help to build the trust and rapport that is so essential to a successful relationship.
Use a persuasive sales approach to encourage them to arrange payment.
Most collectors can anticipate common objections, so be prepared and have your responses ready to go.
Communicate the advantages and benefits of paying you.
Why should your debtor pay you before one of their other financial obligations? What’s in it for them? Be prepared to communicate this benefit.
Negotiate a successful outcome.
The best negotiators focus more on what they can do for their audience than themselves. Negotiation is more about listening than talking, being respectful, and focusing on a common ground. You may ultimately want to get a full payment, but use your best negotiation techniques to get some form of payment — even if it’s just a partial—because after all, something is better than nothing, and your flexibility will go a long way with building that all-important rapport with your borrower.
Close the sale.
Before you get off of the phone, gain a commitment from your borrower and “close the sale.” Whatever the agreed upon terms are, make sure you collect payment, notate their promise to pay, or schedule their future date payment.
While the collections business has in fact evolved with modern technology, the goal is still the same creating win-win solutions for both the lender and the borrower. Learn how one of our clients, Rivermark Credit Union, was able to reduce delinquencies and improve right-party contact rates by outsourcing their collections. Click here to download our case study today.