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Taking a more enlightened, strategic approach to default management

Companies that view default management as merely a cost of doing business are missing significant upside opportunities to become more customer-centric and competitive. A recent assessment of a major bank found annual debt-related losses exceeded recoveries by a factor of 10 to one. Whether in banking or any other industry, taking a more enlightened, strategic approach to this important function through, for example, executive attention, proper investment and performance management can reap significant rewards. Effective, strategic default management drives revenue recovery, risk mitigation, customer retention and cost reduction.

As a result, there are many reasons to revisit and, if necessary, reinvent the processes and technology used to support default management programs. Change is needed to address new types of accounts and creditors, customer expectations for comprehensive service, new types of activity conducted via new types of channels, new laws and regulations, as well as new agents, agencies and related stakeholders.

A truly high-performing, value-generating default management program requires a holistic view of the entire business environment. Such a view enables the development of a cohesive strategy, the definition of effective processes, the implementation of the right technology, and the running of operations capable of collapsing silos and facilitating the achievement of enterprise-wide performance objectives. 

Here are seven steps to consider in moving to a holistic default management program:

1.  Custom tailor collection strategies and treatments. Customer centricity means that not all delinquent accounts are the same nor should they be treated the same. Enlightened treatment strategies help not only to retain valued customers but also build brand loyalty. To make the most of each interaction, customers need to be accurately identified, scored and segmented.

2.   Use the customer’s preferred mode for communicating. Multi-channel integration supports customer centricity by delivering the right message to the right debtor at the right time and via the right channel (examples include traditional letters, mobile texts, emails, self-service web portals, and outbound dialers). Such a multi-channel capability helps ensure the delivery of communications that are private, secure and reliable, while honoring the customer’s lifestyle choices and contact preferences.

3.   Make the improvement plan achievable. Collections best practices define what is reasonable and achievable. Such practices are based on an assessment of where the enterprise is today and a realistic view of desired performance improvements. To be truly sustainable over the long haul, enhanced, repeatable processes and methods must be developed and well managed, as well as measured often.

4.   Use data to drive better decision-making. Business intelligence data promotes operational insight, creating more effective treatment strategies, optimizing channel delivery, improving the management of staffing and workflow, and reducing risk. In this environment, supported by analytics, data engines and data-driven rules, better information is used to reduce ad hoc decision-making and increase results accuracy and predictability. New insights also enable creditors to better work with third-party agencies, skiptrace and repo companies, and litigators.

5.   Orchestrate vendor efforts. Third-party management brings coherence in working with multiple types of companies for collections and recoveries. Creditors need to align collection strategies with collection categories, determine the most appropriate collection entities to deploy, and consistently challenge results.

6.   Consider market alternatives. From risk scoring to effectiveness reporting, external platform providers offer innovative, purpose-built applications and hosting services.

7.   Understand regulatory changes and compliance risks. The right debt management solution will be capable of quickly reflecting regulatory changes and their impact on systems and processes.

Default management is not glamorous. Companies, especially those in the financial services sector, understandably prefer to focus their attention on new products and services, new markets and new opportunities for profitable growth. Yet companies that do take a holistic approach to default management benefit from a more comprehensive and rational view of the business itself. They realize that firms leaving money on the table are unlikely to be around for the long haul. True, most companies will never make default management the focus of their marketing campaigns. Market leaders, however, will ensure default management is a well understood and widely shared strategic priority and take a holistic approach to its execution and evolution.  

Pamela Smith, Vice-President, CGI

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