It seems that every day we are presented with more evidence in the media that the country is in the grip of a serious downturn.
With all the economic indicators pointing downwards, the crucial figures for lenders are all arrears-related. And again here the news is not good, with many big mortgage providers reporting surges in defaults.
The Financial Services Authority reported in August that the number of homes repossessed by lenders in the UK rose by 40% in Q1 2008.
Meanwhile, the Council of Mortgage Lenders has stated that there will be 45,000 repossessions and 170,000 mortgages in arrears of more than three months by the end of 2008.
With inflation squeezing family budgets and average household debt – including unsecured debt – estimated by Credit Action to be £21,650, arrears are expected to rise.
Clearly, such figures represent an urgent issue for the market, and lenders in this situation could benefit from a adopting a multiple solution approach.
For lenders, developing good customer relationships is vital. Implementing an approach that controls the entire collections process from pre-delinquency to debt recovery can help businesses adopt a proactive technique when it comes to managing their customer bases.
In an ideal world, lenders would take advantage of customer profiling and intelligent credit reference agency data concerning the propensity to default. In conjunction with a business rules engine, such information can be used to formulate a range of approaches to manage various situations, including pre-delinquency strategies. Of course, it is imperative that the data available to lenders is used intelligently to stay ahead of the game.
A well thought out system, including clearly defined processes, can facilitate the efficient capture of customer information. Lenders can use this powerful data to segment their customer base according to individual characteristics, and from there develop effectively targeted collections practices rather than falling back on a one-size-fits-all approach.
With the country officially in recession, lenders need to focus on their core competencies and consider outsourcing areas of their operations which have become time-consuming and resource-intensive.
Of course, lenders are not compelled to accept outsourcing in its entirety, and can instead match it to their requirements.
For example a lender’s arrears team may be successful in managing early arrears but further along the cycle, once customers reach, say, their third defaults, experience management difficulties. At this point an outsourcer could be brought in.
Heads of collections departments need to keep a tight grip on their operations and many believe that outsourcing leads to loss of control. However, by engaging appropriate outsourcers len-ders can reap the benefits of enhanced business intelligence and higher quality reporting. A partnership ethos is essential to the success of any outsourcing arrangement, as this facilitates a seamless and consultative approach.
Before engaging an outsourcer, it is important that a realistic assessment of the skills within the existing collections team is undertaken. This way, the organisation can allow its departmental staff to concentrate on exploiting their expertise in areas in which they are strong while bringing in an outsourcer to focus on areas that require attention.
Lenders will be well aware of the amount of reorganisation they need to deal with an increase in arrears. However, adopting an approach centred on robust systems and processes could help lenders accelerate their collections procedures in these tough times.