How does the Debt Collection Agency work?

BFSI companies have to collect money from people on a continuous basis, which is outsourced to a third party, the Debt Collection Agency. However many times they have their own collection department. Inefficient collection system can paralyse the cash flow for the BFSI company.

Outsourcing the debt collection work to a third party is profitable for BFSI companies like Banks, NBFC, insurance and Credit Card companies. It reduces their cost of collection and at the same time brings in more efficiency.

What is a Debt Collection Agency?

Debt Collection Agency is a specialised organisation, who get the list of payees from the banks and do the collection work on their behalf. Collection Practice deployed by these agencies is well tested.

The primary role of the Agency is to collect Accounts Receivable on behalf of BFSI Company. The Agency employs people who call, remind, visit actual borrowers and make them pay the money due.

Agencies use every possible way of communicating to collect the debt, It may be Calls, SMS, WhatsApp, Emails, Letters, Personal visits. They may contact borrowers or guarantors in case the borrower is not properly responding.

Generally, Agencies don’t collect and keep the amount themselves. They helps the borrowers to make the payment in the original BFSI company’s account, directly.

Debt collection is different from Debt Buying

Collection Agencies just collect or recover the debt from the borrowers on behalf of original Creditors, i.e. BFSI companies who have granted the credit. However, debt buyers are different from these agencies. When Debt buyers buy the debt, they become the Creditors.

Debt buyers generally buy some particular amount of debt at a discounted price and then they do the collection process. The main difference is that Debt buyers don’t collect on someone’s behalf, they are the creditors.

Debt buyers do comprehensive market research before buying the debt. Based on that research report they analyse whether they can collect the debt within the forecast period so that they can remain profitable.

Debt Collection Techniques & Process

Debt Collection Agencies get paid on the basis of the percentage of the total debt that they collect. Higher the percentage of collection, higher is their commission. Hence in order to remain profitable, the agency has to be very efficient in collecting the debts.

The commission for Agencies is very small and at the same time, the time available for collection is also limited. If they don’t collect money (or EMI) when it is due, they will not earn money. Operational efficiency is the key element, which is not possible without proper techniques and processes.

Collection Data received from BFSI

This is the starting point of the whole process. Banks (or any BFSI company) will give the data of borrowers from whom the money is due for the particular period.

Generally Banks give data every month, based on their monthly closing date. These data includes lots of information about the due amount, the borrower and their past history of payments.

This data enables Agencies to collect the money from the borrowers.

Assigning Calls and Tele-calling

Agency assigns data to their collection Agents, who are generally tele-callers. The assignment can be manual or automated by the software, based on requirement and configuration.

These tele-callers give a call on the registered phone numbers of the borrowers. A Call generally is a first attempt to collect the money.

Field force for Actual Collection

But then there are borrowers, who don’t pay due amount by telephonic reminder. In that case then, agency sends their field staff personally to the registered address of the borrower.

If they find that borrower is not responding or absconding, then they may approach guarantors for that borrower also.

Reporting and Analysis

Finally, the Agency has to submit reports to Bank for analysis purpose. This report includes amounts collected, PTP (Promise to Pay), calls made, visits made etc.

Generally banks have specific formats in which they need reports. These reports are generated using the software.

Some Debt collection tips on how to collect debt effectively

Debt collection agency runs on only one funda, i.e. Efficiency. Operational efficiency is the only reason they are into business. Hence, it is always necessary to use best practices for debt collection process.

Training the staff regularly

The employee churning rate is very high in debt collection Agencies. This is because they are very low paid and tend to jump jobs for smaller increments. Paying a higher salary is not feasible, because they are not efficient.

This is a typical chicken and egg story. The only way is to have regular trainings to maintain higher efficiency. So that the salary can be increased and people can stick to the jobs.

Quality analysis of the calls

More than 80% of the collection is done over the phone. Since all the communication is made by agency employees, its very important to analyse what they are talking.

All calls need not be analysed. It can be a random check or specific calls of specific borrowers or specific agents. But quality analysis of calls is a must. It also tells, where the training is necessary.

Using Debt Collection Management Software Technology.

Today is it not possible to efficiently run a Debt collection Agency without technology. Proper use of Cloud, Software, analytics and Mobile technologies is the only way to achieve efficiency.

Why BFSI Companies outsource work to Debt Recovery Collection Agency

BFSI Companies who are original Creditors, generally outsource the work to Collection agencies for debt recovery. This is convenient for them for various reasons, as listed below.

1. Operational Efficiency
   1. Agencies are much more efficient than banks in doing the collection work.
   2. There are many reasons, like better experience in doing collection and recovery, exposure, use of technology, the more entrepreneurial talent involved, experience from working for different BFSI companies
2. Low Cost.
   1. Agencies can employ people at much lower rates. A well established BFSI will never be able to get people at such low salaries.
   2. The Legal system and HR policies of that company will not allow it.
3. No Employee Liabilities.
   1. Legal framework and corporate HR policies avoid companies from hiring and firing whereas Agencies can easily do that.
4. Easily Scalable
   1. Agencies generally work for multiple BFSI companies, which allows the load balancing in a very efficient manner.
   2. In case a BFSI client needs to deploy more agents, the Collection Agency can easily adjust the load.
5. Incentivise performance and penalise inefficiency
   1. The revenue model of Collection Agency is based on efficiency. More the collection, more the revenue of the Agency.
   2. It is very easy for BFSI companies to penalise and incentivise the agencies based on their performance.
6. No need to manage people.
   1. Since Collection Agencies work in smaller teams they are efficiently managed.
7. Maintain Market Share
   1. If BFSI companies want to grow fast and keep their market share, they need to outsource the functions and keep the IPR with them.
   2. Lead management and Debt Collection are two functions which are most often outsourced.

How Technology has changed Debt Collection Business

The only way to achieve operational efficiency is to have proper processes and use of technology. But in order to understand the impact of technology on this business, we must first evaluate the scenario, when technology is not used.

Inefficiencies, without use of Technology

1. Challenges in data collection and assignment to staff.
   1. Using Excel for Assigning borrowers data to Agents for the calling purpose, is highly inefficient.
   2. You always end up with multiple versions of the same data.
2. Calling is a challenge.
   1. A proper Dialler with Click to call and other features is required.
   2. A Predictive dialler is always welcome.
3. Analysing efficiency of Agents
   1. In the absence of technology, it is highly difficult to analyse tele-caller efficiency.
4. Reporting back to Banks
   1. Banks or BFSI companies requirement for reports is very stringent.
   2. They need multiple reports on the progress and result of the collection process. Which is extremely difficult to compile.
5. Wastage of Human Resource
   1. As we can see that collection and analysis of data since done manually (or manually in Excel), requires a lot of managers and senior number crunchers to waste their hundreds of hours in compiling the reports.

Benefits of Technology in Debt Collection

Now consider the same scenario above with the use of technology.

1. Data Collection
   1. The data can be imported into the system either using .CSV or Excel Files.
   2. The better way, however, is to have a secured API link between the two systems for data transfers. The use of API eliminates data duplication and also the possibility of data leakage.
2. Assignment of Calls
   1. Admins can configure criteria on which the CRM software can automatically assign the calls to the Agents.
3. Performance Analysis
   1. All the calls, Visits, SMS, Emails and other activities as done by every Agent is available in the reports.
4. Reporting to Banks
   1. Banks require different reports on different dates.
   2. All these reports are ready made and just a click away in the CRM software.
5. Legal Benefits
   1. With the use of technology, Data-privacy and data-security are much higher. e.g. Now you are not giving excel files to your callers.
   2. With Call recordings and logs available in centralised digital format, it is easier for BFSI companies to meet legal obligations.

Debt Collection Software

There are various players in the Debt collection software market, offering various types and levels of solutions. Global Debt collection software which is designed as per guidelines of the Federal Trade Commission of USA are not always the proper fit for the Indian environment. In India, we will need specialised solution to suit our debt collection process.

Though the collection software market size is huge, there are very few specialised players in Indian Market. It is party because the Collection Agency uses a suite of Technologies.

Features to look for in Debt Collection Software

1. Secured.
   1. Banks and BFSI companies put prime importance of Data safety, security and privacy.
   2. The Software needs to be secured at all the levels.
2. Data Import
   1. Import Borrowers data from ERP, either as batch-wise import/export or Data Sync using API.
3. Tele-calling Integration
   1. Integrated Tele-Calling Solution, with Call recording, Predictive dialling and automatic Call distribution (ACD) facility.
4. Predictive Dialling
   1. Predictive dialling increases calling efficiency significantly.
   2. The Software should be able to take all the relevant parameters into account before dialling calls automatically.

Debt Collection Software Prices

1. One time cost.
   1. Debt collection Software available at a fixed one time cost is not recommended as it will not provide updates, upgrades and most importantly changes from time to time.
   2. Debt collection is a very dynamic business, Since the govt Policies may change. Also, different BFSI companies have different criteria for data and reporting.
2. Per-user Subscription
   1. Most suitable as it limits the liability of Debt Collection Agency as per their requirements.
   2. The Cost to Company is dependent on the number of Agents using the software platform.
3. Mixed Cost
   1. Some components may have fixed costs e.g. Telephony infrastructure.
   2. While the software part is based on per-user cost.
   3. This is best of both the worlds, most beneficial for the Agency.
4. Implementation & Customisation Costs
   1. Generally, these are implementation costs are one-time costs.
   2. However, when the Agency gets a new BFSI Client, it may require some customisation to reporting, calling pattern and some other parts.

Debt Collection CRM Software

The software is generally called CRM Debt Collection since, it needs to maintain details of Customers (borrowers), amount collectable and all their activities.

Is Cloud based Solution feasible?

Although the Cloud-based CRM software is much more secure now. But BFSI companies generally insist on installing the Application either in their premise or on the servers in their data centres.

The Debt collection software which consists of Telephony + CRM + Mobile App can be installed at Client location also.

Why Debt collection Agencies use Thin Clients?

The data that these agencies handle is very sensitive. The BFSI company is most concerned about the data privacy and safety. Of course, there are clear legal agreements between BFSI company and Agency. Agencies have to make sure that they take utmost care for data privacy.

Thin Clients provide a huge advantage when Data privacy and safety is concerned. Here are some of the reasons why Thin Clients are very popular in Debt Collection Agencies.

1. Cost Effective. Even after reducing prices of desktops and laptops, thin clients still have lower TCO (Total Cost of ownership)
2. No Data Corruption. The Operating System used in Thin Clients is not the regular OS, but an embedded OS. Which is secured from Virus and data corruption.
3. No Data Leakage. All the USB ports can be blocked for Thin Clients, which avoids any data leakage possibility.
4. Dedicated Applications. Generally, thin Clients have dedicated and specialised applications, based on the purpose for which they are used.
5. Locked Environment. The users cannot add or modify any software without the permission of Administrators.