The auto finance industry is booming, so it’s no surprise that auto finance debt collection is big business. In fact, U.S. auto loan debt grew to $1 trillion for the first time in 2015, according to 2016 research from PricewaterhouseCoopers (PwC). The majority (87%) of participants in PwC’s survey reported performance either above or significantly above their expectations in the previous year, and 80% of respondents said they expected moderate to significant growth to continue over the next 12 months.
Along with this growth, however, is a rise in auto loan defaults. Auto loans make up only a small portion of household debt, but 90% of retail car sales in the U.S. are financed through leasing or loans. What’s to blame for the skyrocketing number of auto loan defaults? Subprime auto loans are a likely contributor, but consumers who have a tendency to splurge on fancy, pricey cars that squeeze their monthly budget can easily find themselves in a tricky financial situation.
No matter the cause, auto financing companies are faced with handling a larger volume of collections activities than ever before, and that means lenders who handle collections in-house as well as third-party auto finance collections agencies need to stay up to speed on the changing regulatory landscape and best practices for successful debt collections operations. We’ve created this comprehensive guide to provide an overview of the current debt collection landscape. Below, we’ve rounded up 50 quotes from debt collection experts, regulatory agencies, and thought leaders offering tips and tips and strategies for collections, best practices for running a cost-effective collections process, and more.
Jump to a topic by clicking a link below:
- Understanding Debt Collection Regulations
- Training Auto Finance Debt Collection Agents
- Debt Collection Professionals: What to Look for When Hiring Agents
- Outsourcing Auto Finance Collections
- Strategies and Best Practices for Auto Finance Debt Collection
- Understand what the TCPA means for your business. “The Telephone Consumer Protection Act(TCPA) regulates pre-recorded and/or auto-dialed commercial communication, and prohibits the use of auto-dialers or prerecorded messaging to wireless numbers, health care facilities, emergency lines, or any called-party pays number without the prior consent of the called party. In the case of telemarketing communications, new FCC regulations require that the prior consent be written.
“Additionally, the TCPA prohibits:
- Non-emergency pre-recorded calls to residential lines without the prior express consent of the called party (subject to specific exemptions)
- Transmission of unsolicited advertisements to fax numbers
- Use of auto-dialer to engage two or more business lines simultaneously
“With these explicit restrictions in place, agencies and creditors need to determine which restrictions specifically apply to their business. Becky Burr explained the meaning of “prior consent” in different contexts and discussed the financial risks associated with compliance failure in the webinar here.” – Dorean Kass, How To Maximize Collections with TCPA Compliance: Best practices for financial agencies and creditors, Neustar; Twitter: @Neustar
- The SCRA is another important regulation for auto finance debt collectors to understand. “The Servicemembers Civil Relief Act (SCRA), formerly known as the Soldiers’ and Sailors’ Civil Relief Act (SSCRA), is a federal law that provides protections for military members as they enter active duty. It covers issues such as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments.” – SCRA, The United States Department of Justice; Twitter: @TheJusticeDept
- Laws pertaining to debt collection may also vary by state. “Business owners in every industry have to be careful, but debt collectors may find themselves under particular scrutiny. Remember, if you’re found to be in violation of any rules or regulations pertaining to your business, you can’t claim ignorance as a defense.
“Regulations vary between states, and sometimes counties or cities might have additional laws about how you do business. Like New York City does, your city’s governing body might have a helpful guide to these laws. Make sure you know the rules, inside and out, before you start. Your first step should be to retain a trusted attorney, with experience in this field, to help you navigate the law.
“The laws governing debt collection businesses can be complex, and it seems no detail of your business is too small to legislate. Depending on your location, there may be laws about what time of day you are allowed to call debtors, which steps can be taken to collect different types of debt, and even which words or phrases to stick to when talking to debtors. Some debtors record their conversations with collections agencies, so make sure you’re recording them, too.
“While it may sound like micro-management, a whiteboard in the office with phrases and wording to be avoided could save your business from costly mistakes.” – Todd Bryant, The Steps to Starting a Successful Debt Collection Agency, Let’s Talk Payments; Twitter: @LetsTalkPaymnts
- The FDCPA does not cover collections by the original creditor to which a creditor is indebted. “The FDCPA does not coverbusiness debts. It also does not generally cover collection by the original creditor to whom you first became indebted.
“Under the FDCPA, debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business. There are also companies that buy past-due debts from creditors or other businesses and then try to collect them. These debt collectors are also usually called debt collection agencies, debt collection companies, or debt buyers.” – Are there laws that limit what debt collectors can say or do?, Consumer Financial Protection Bureau; Twitter: @CFPB
- Under the FDCPA, debt collectors are prohibited from engaging in certain practices. “Under the FDCPA, debt collectors are barred from engaging in the following practices:
- Harassment – Debt collectors may not harass, oppress or abuse the consumer by using threats of harm, using obscene or profane language, or repeatedly contacting the consumer via telephone with the intention of causing an annoyance.
- False Statements – Debt collectors are forbidden from lying in an attempt to collect a debt. Some examples include falsely identifying themselves as credit reporting agency representatives, attorneys or government representatives, claiming that you have committed a crime or misrepresenting the amount you owe.
- Unfair Practices – Debt collectors may not engage in unfair debt collection practices by trying to collect interest or a fee beyond the total amount the consumer owes or the state law allows. If you give a collector a post-dated check as payment, they aren’t permitted to deposit the check early. Collectors aren’t allowed to threaten to take your property unless they can do it legally, and they’re barred from contacting you with a postcard.
- Misleading Threats – Debt collectors aren’t allowed to threaten consumers with legal actions that aren’t permitted or they don’t plan to pursue.
- Wage Garnishment – Debt collectors are not legally allowed to garnish wages or bank accounts without a court order. Such a judgment directs a bank or employer to turn over funds or wages in order to pay the debt. Even then, many federal benefits are exempt from garnishment, including Social Security, student assistance and military annuities.
- Misleading Correspondence – Debt collectors aren’t allowed to give false information about you to anyone — including a credit reporting agency — and they can’t send you anything that looks like a court or government document if it isn’t one. Conversely, they can’t lead you to think that papers they send you aren’t legal forms if they are.” – Fair Debt Collection Practices Act, Debt.org; Twitter: @DebtHelpOrg
- There are also a number of requirements debt collectors must follow to comply with the FDCPA. “The FDCPA contains a number of provisions that debt collections must follow in the collection of a debt including:
- Validating the debt requirement
- Prohibition against harassing or abusive practices
- Prohibition against providing false or misleading information
- Prohibition against using unfair or unconscionable means to collect a debt
- Payments must be applied in accordance with the consumers instructions in the event of multiple debts
- Prohibition against furnishing deception forms” – Fair Debt Collection Practices Act (FDCPA) and Large Debt Collection Participants, Experian; Twitter: @Experian
- Auto finance companies may not engage in practices deemed abusive or unfair. “Speaking of ‘abusive,’ in July, the CFPB published two bulletins advising companies about unlawful conduct in collecting a consumer’s debt. The first describes certain acts or practices related to the collection of consumer debt that could, depending on the facts and circumstances, be considered unfair, deceptive or abusive practices (a.k.a. ‘UDAAPs’) under the Dodd-Frank Act. The bulletin provides examples of such UDAAPs, but notes that the examples are not exhaustive. They include:
- Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees and charges) not expressly authorized by the agreement creating the debt or permitted by law
- Failing to post payments in a timely or proper manner, or to credit a consumer’s account with payments that the consumer submitted on time and then charge late fees to that consumer
- Taking possession of property without the legal right to do so
- Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers
- Falsely representing the character, amount or legal status of the debt
- Misrepresenting that a debt collection communication is from an attorney
- Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency” – Tom Hudson, Complying With Collections Laws, Auto Dealer Monthly; Twitter: @ADMMagazine
- A recent Supreme Court case, Henson v. Santander Consumer, determined that the FDCPA does not apply to creditors who purchase outstanding debts from original creditors. “At issue is theFDCPA’s definition of a ‘debt collector.’The law says it refers to anyone ‘who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.’
“’Everyone agrees that the term embraces the repo man — someone hired by a creditor to collect an outstanding debt,’ writes Gorsuch in the relatively short, unanimous opinion. ‘But what if you purchase a debt and then try to collect it for yourself — does that make you a ‘debt collector’ too?’
“Gorsuch also notes that there is already a consensus understanding that third-party debt-collection agencies are explicitly covered by FDCPA while companies simply trying to collect on debt they are owed from their customers are not restricted by this law.
“The question for SCOTUS was ultimately whether Santander was a collector trying to collect on a debt that was owed to Citi, or if Santander owned the debt.
“Justice Gorsuch writes that the language of the FDCPA does not suggest ‘that we should care how a debt owner came to be a debt owner — whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’’” – Chris Morran, Supreme Court: Protections Against Debt Collectors Don’t Apply To Banks That Purchase Defaulted Loans, Consumerist; Twitter: @themorrancave, @consumerist
- The Supreme Court decision eases FDCPA risk for some groups, although auto finance companies must continue to be mindful of state regulations. “Another thing to keep in mind is that states can always enter this space to regulate where Congress fails to do so. State legislatures tend to be more nimble than the federal legislature. In response to the proliferation of the debt buying industry, numerous states have stepped in over the past few years to pass legislation expressly regulating debt buyers.
“If that trend continues to spread, we could see further consolidation of the debt buying industry as the cost of multi-jurisdictional compliance becomes overly burdensome for smaller players. Further, the CFPB still has UDAAP authority and the FTC still has UDAP authority over entities that purchase defaulted debt and try to collect from consumers.” – Anastasia Caton, Hudson Cook Associate, as quoted by Nick Zulovich in What Supreme Court decision on debt collection means for auto finance, SubPrime; Twitter: @AutoRemarketing
- New CFPB rules proposed in 2016 outline new requirements for establishing indebtedness. “The Bureau is considering identifying certain fundamental informationthat collectors can obtain and review that, along with a representation of accuracy from the creditor and a review for warning signs (warning signs will be discussed below), would establish reasonable support for claims of indebtedness. A complete list of the items that the Bureau is considering as ‘fundamental’ is provided in Appendix C of the Outline.
The ‘fundamental information’ would include the following:
- The full name, last known address, and last known telephone number of the consumer;
- The account number of the consumer with the debt owner at the time the account went into default;
- The date of default, the amount owed at default, and the date and amount of any payment or credit applied after default;
- Each charge for interest or fees imposed after default and the contractual or statutory source for such interest or fees; and
- The complete chain of title from the debt owner at the time of default to the collector.
“However, the proposal would not require a debt collector to obtain every item. It would allow the debt collector to substantiate indebtedness through alternative or additional information. But, in that case, a debt collector would ‘bear the burden of justifying its alternative approach.’” – Tim Bauer, insideARM Perspective On CFPB Outline of Proposed Debt Collection Rules – Information Integrity, insideARM; Twitter: @insideARM
- Even if you’re not a “debt collector,” you may still be liable for unfair debt collection practices. “The CPS complaint is noteworthy in that the company wore two hats. Sometimes it served as a debt collector for others, but in most cases, it acted as a creditor collecting its own debts. Why is that distinction important? Because the Fair Debt Collection Practices Actapplies only to companies collecting debts owed to others. But creditors shouldn’t breathe a sigh of relief just yet. Even if you’re not covered by the FDCPA, unfair or deceptive practices are still illegal under the FTC Act. The complaint in this case alleged FDCPA violations when CPS was a debt collector and Section 5 violations when the company was a creditor.” – Lesley Fair, Hat trick? FTC charges violations in auto loan servicing, debt collection, credit reporting, Federal Trade Commission; Twitter: @FTC
- Don’t skimp on training for in-house debt collection agents. “To create the culture you wish to create takes time. It takes hiring the right persons and then training them to move in the direction you envision for your business. There are no corners you can cut.
“Your collection staff must be trained to view their role as customer service providers. Anyone who brings to the table a stereotypical view of collections will need training to see their role in a fresh, new way.
“As problem-solvers, your collection staff will be called on to think creatively and strategically with your customers. They represent you and your company therefore the manner in which they interact with your customers (delinquent or not) will have an effect on your customer base and bottom line.” – 8 Collection Staff Training Tips, C2C Resources; Twitter: @C2CResources
- Educate collectors on compliance issues. “A qualified debt collector should — first and foremost — be familiar with debt collection rules and regulations, said Brad Emerson, president of CAC Services, a debt collection company based in Irvine, Calif. Therefore, it is important to educate debt collectors about compliance issues before they start the practice. For example, the Fair Debt Collection Practices Act (FDCPA) — a federal law that provides limitations on what debt collectors can do when collecting certain types of debt — is something debt collectors should always keep in mind, he said. In light of the law, debt collectors should protect debtors’ confidentiality and never disclose the existence of debts to others who are not authorized to know about the debts. These concerns should be addressed during the training.” – Huixin Deng, 3 Best Practices for Training Debt Collectors, The Center for Auto Finance Excellence
- Policy comprehension is only part of the compliance equation; policy retention is the other. “It is critical for collectors to obtain missing client payments in a legal and professional manner. With proper training, an effective collector possesses an in-depth understanding of the federal and state lawsthat govern debt collection practices. Federal laws include the Fair Debt Collection Practices Act (FDCPA), Federal Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA) and Servicemembers Civil Relief Act (SCRA). A collector’s ability to implement all laws along with individual agency policies into their performance is a must.” – Jessica Beaudry, The Profile of a Successful Debt Collector, Optio Solutions, LLC; Twitter: @optiosolutions
- Teach collection agents to exude confidence by smiling during interactions with debtors. “Come up with a greeting that says you’re happy, pleasant and confident. When your customer answers the phone and realizes you’re calling about a past due invoice, they’re not going to be happy. You want to portray confidence and not a dull, boring message. Smile when you talk on the phone; it will be noticeable in your voice.” – Michelle Dunn, Make Effective Collection Calls, Entrepreneur; Twitter: @Entrepreneur
- Thorough notes and documentation are a must. “One of the greatest mistakes a debt collector can make is failing to take notes of communications with debtors. Note-taking in collections entails much more than simply noting down dates when payments are promised. A good debt collector notes aspects of the debtor’s personality, tactics that work and don’t work, every piece of information regarding payments, reasons the debtor hasn’t paid already, etc. By keeping detailed notes on all collection efforts, a collector will always be better prepared when contacting the debtor, and if another collector has to work on the account (while the original collector is on vacation, for example), they’ll be far better equipped to make progress on the account knowing what’s already been discussed.” – Dean Kaplan, More Tips For Successful Debt Collection, The Kaplan Group; Twitter: @TheKaplanGroup
- Debt collectors should be trained on how to ask the right questions to get a commitment. “All your questions should be clear and to the point followed by silence after each question. Here’s an example.
Debtor: I can’t pay, I don’t have any money
Collector: Are you working?
Debtor: Yes, but I just started a job and don’t get paid for two weeks.
Collector: What day will you get paid?
Collector: Okay, then you can mail a money order for $25 on Saturday.
“This example can go so many different ways depending on the debtor’s responses. You have to be positive and get them to agree to make a payment. Once you reiterate what is going to happen, send them a confirmation letter with a payment envelope. Then call them on Friday to remind them about mailing the payment. Your follow up call could be: Hi this is Michelle from KTM Auto, calling to confirm you will be mailing a money order for $25 tomorrow, Saturday.” – Michelle Dunn, Become a Debt Collection Master and Collect More Money Today, DeniseOberry.com; Twitter: @deniseoberry
- Debt collection agents should get an acknowledgement of the debt. “Courteously have them acknowledge the amount of money they owe. One way to do this is to ask them if they have any queries or clarification about the charged amount.” – 5 Successful Debt Collection Techniques, Gabbyville; Twitter: @GabbyvilleInc
- Collectors must be able to get past the gatekeeper to reach the bill-paying decision maker. “Unfortunately, some debtors use others within their homes to screen calls. A great collector reads these situations and works to get to the bill paying decision maker.” – Brad Young, The Top 8 Characteristics of Successful Collection Agents, SWBC Blog; Twitter: @SWBCServices
- Teach good phone skills to new and inexperienced auto finance collectors. “Developing good phone skills is clearly essential to successful collections. Role playing is a handy method for training phone technique. Make sure your training program includes instruction on:
“Listening – Good collectors are good listeners. They are listening for the meaning behind what is being said rather than the tone of voice. They know that letting the debtor talk freely gives them insight into how they might collect the debt.
“Speaking – Telephone etiquette is important for all professionals and collectors are no exception. Good communication skills are necessary as this individual may be the only interaction a customer has with your organization.
“Your new collector should strive to find their telephone “personality.” Most people have heard that 80% of communication is non-verbal, using facial cues and body language to help us respond appropriately. Phone collectors must make up for the lack of visual information by using their voice to impart information about the situation. Tone of voice, cadence of speech, timing, and inflection are critical.” – Training an Inexperienced Collector, Government Revenue Collection Association
- Auto finance debt collection representatives must know how to get a commitment from the customer. “A call that doesn’t result in a commitment from the debtor is a wasted call. If you can’t get them to commit to payment in full, get a promise of something — a partial payment or a call back with a payment date. Make sure you control the timing. Don’t ask, ‘When can you get back to me on this?’ Rather, ask ‘Will you be calling me by Wednesday?’
“Don’t hang up the phone without summarizing the results of the call: their commitment; your expectations; and, the consequences if your expectations are not met. Emphasize the urgency of the matter. It’s easy for the customer to forget your call as soon as he puts down the receiver, especially if they don’t think you were really concerned about the outcome.
“Stress the importance that the debtor call you back on the date they promise payment — to let you know the check has been sent. If they fail to call, the payment likely didn’t happen. You won’t waste time waiting for a check that was never mailed.
“And finally, if the debtor doesn’t follow through on their commitment, make sure you follow through on the consequences. If you don’t, they will never take you seriously.” – Bob Tharnish, Six Tips for Making Collection Calls that Get Results, ABC/Amega; Twitter: @ABCAmega
- Debt collection agents should start each interaction with a reminder of the details of the debt. “One of the best ways to start off a negotiation is to remind the debtor about the details of the debt. Every once in a while, you might catch someone who honestly forgot about a debt. It is also possible that a debtor has cleaned up their act and a simple reminder is all they needed to make a payment.
“Even when these lucky situations don’t occur, you will still be starting the negotiation out on the right foot by reminding the debtor that they owe you for products or services that have already been delivered.” – Richard Hart, 20 Tips to Improve Your Debt Collection Negotiations, Direct Recovery; Twitter: @DirectRecovery
Debt Collection Professionals: What to Look for When Hiring Agents
- Collectors must have a varied set of skills including the ability to act as a financial advisor, a negotiator, and a friend. “Collectors have understood for years that to be successful on a collection call they simply needed to discover the conflict and resolve the consumer’s issues. While overcoming objections is still a valuable skill it is ultimately not enough. Collectors must act as financial advisor, negotiator, and even sometimes a friend. In an increasingly complex environment, our collectors must do much more. This new level of complexity calls for a new model to not only frame a collector’s thinking but also tap into already acquired skills.” – Brett Sivits, The Collection Equation: Seven Tips for Effective Debt Collection, insideARM; Twitter: @insideARM
- Debt collectors shouldn’t assume anything. “When making your initial debt collection call, quickly make sure that the debt has in fact not been paid. Don’t alienate the customer. Remember there may be potential future business with the customer. The debt in question could be a mistake and not a collection problem at all. Be careful with your tone and your words at this point. Wait and listen to what the customer has to say, and be sure to document the interaction carefully and accurately.” – Dean Kaplan, Tips For Successful Debt Collections, The Kaplan Group; Twitter: @TheKaplanGroup
- Debt collection professionals must be able to demonstrate confidence and trustworthiness. “The ability to sell the notion that members need to pay their credit union first dovetails with two leading qualities for good collections professionals offered by Dona Svehla, senior vice president for retail lending and loss prevention at the 156,000-member, $1.8 billion Grow Financial Federal Credit Unionin Tampa, Fla.
“Svehla said good collectors will project a sense of confidence and enthusiasm about what they are doing and will, in turn, seek to build trust with a debtor.
“’It is essential that the debtor trusts that the collection agent both knows how to help them and will follow through on what they say they will do,’ Svehla said. ‘The last thing you want is a collection agent who is having to say, ‘I don’t know’ or, ‘let me find out’ to a member who is trying to work out a plan for how they are going to pay us. Those answers make the member feel like they need to talk to whomever the collection agent is talking to.’” – David Morrison, The Five Traits of Successful Collections Professionals, Credit Union Times; Twitter: @CU_Times
- Attitude is everything. “Attitude is a very important factor in the collections industry. You have to have thick skin and not take the business personal. You will be faced with situations when customers are frustrated with their life situation and take their emotions out on you. You want to adopt a straight, professional business-like attitude. Don’t yell or raise your voice; never swear and don’t threaten.You want to act sternly but not mean. Although it can become difficult when customers turn angry and become agitated with you; however, keeping a positive attitude can mean the difference between collecting and having them shut down. People in debt are most likely living paycheck to paycheck and are stressed out enough. As a collector you must keep a stern tone when speaking but remain friendly and understanding at the same time, to convince customers to pay but also let them know you understand and are willing to negotiate.” – Jamelah Henry, Useful Tips to Successful Debt Collecting, LinkedIn; Twitter: @pro_careercoach
- Good debt collectors must be able to quickly bounce back from setbacks. “Good debt collectors have ‘short memories’ and a personality that allows them to rebound quickly after a brief setback. When dealing with financial issues, emotions can sometimes run high and tough conversations are almost inevitable in our business. In order to provide allconsumers with the highest quality customer service possible, our collectors are taught how to stay professional and quickly turn these calls around with compassion and tact.” – Harry Stoll, Successful Debt Collectors Need Both Left and Right Brain Skills, United Credit Service, Inc.
- Choose the right collectors for the job. If you’re outsourcing to an agency, ask for social proof. “It should come as no surprise that not all debt collection agency professionals are created equal. And when choosing a debt collection agency to partner with, the most important consideration you should have in mind is the QUALITY of its collection professionals.
“The collection of Commercial debt is a unique, delicate and often difficult process. Very few collection agencies specialize in this type of debt recovery, so it’s important to ask if its actual collectors on the floor have any specific experience or expertise contacting either mid-level or high-end executives, along with executing an effective collection strategy.
“(Note: One of the fastest ways to determine this is to ask for social proof – client testimonials, references and/or names of other companies this agency has collected similar debt on behalf of, and what the results were.)
“Either way, what you should be looking for is an agency whose collectors can mirror an executive type – meaning these collectors understand the personalities, emotions, egos and other factors that come into play with this type of nuanced, delicate debt recovery.” – 3 Helpful Tips for Commercial Debt Collection Success, Summit AR
- Find out if an agency uses skip tracing. “Unfortunately, sometimes debtors skip town. To combat this practice, good collection agencies use what is known as ‘skip tracing,’ which means that they use and have access to several databases that allow them to locate a debtor who has left no forwarding address. This is especially important if you’ve been personally contacting your debtor and have been routinely ignored.” – Five Tips for Hiring a Debt Recovery or Debt Collection Agency, Rocket Lawyer; Twitter: @RocketLawyer
- A collection agency should represent your company in a professional manner. “Your collection agency should represent your organization in a responsible and professional manner, and provide a satisfactory rate of recovery while maintaining your public image. As with any service, you’d like to get the highest return for the lowest cost possible. However, in the case of debt collection, this decision involves more than just giving your business to the lowest bidder – it requires careful consideration. ‘You get what you pay for’ is often overlooked when hiring collectors and this can lead to lackluster results (best case) or significant damage to reputation (worst case).” – Stephanie Eidelman, Need to Hire a Debt Collector? Here’s Some Practical Help, Forbes; Twitter: @seidelman, @Forbes
- Choose a collections agency with auto finance collections industry expertise, as well as expertise in collecting on certain types, ages, or sizes of debts. “Certain industries may require certain tactics for collections. The agency you choose should at least be familiar, if not specialized, in your industry. Ask if the agency has any other clients in your industry and if so, what their recovery rate is in that industry. The more industry-specialized the agency is, the more likely the debts can be recovered.
“As with industry specialization, some agencies will have more experience with certain types, ages or sizes of debts. Again, ask about the types of debts in which the agency specializes. If your delinquencies are months rather than days past due, or if your collections are in the tens of thousands rather than the hundreds, you’ll want to ensure you are working with an agency that understands the urgency of your collections process.” – Ryan Howard, 10 Tips for Hiring a Debt Collections Agency, BYL Collections; Twitter: @BYLcollections
- Outsourcing auto finance collections to the right agency can boost revenue. “You want to bring in the maximum amount of cash your company is owed, and what better way to do that than to work with people who do it for a living? Using the resources of a collections agency can increase your company’s revenue significantly by collecting on more accounts in a shorter cycle.
“Agencies have their own tools and databases that allow them to analyze clients’ portfolios through things like skip tracing efforts, debt settlement scrubs, debt management companies, and geographic information – all efforts in compliance with industry laws and regulations. This makes it easier to distinguish whether or not an account is likely to respond with payment.” – Why Your Company Should Outsource Collections to a Third Party, Credit Control
- Outsourcing collections can result in reduced collection time, as well. “Rather than having a few members of your staff focus only a portion of their time collecting on delinquent accounts, allowing some to fall through the cracks and become extremely past due, outsourcing gives you an external staff of employees that can dedicate 100% of their time to these efforts and get accounts cured as quickly as possible. This increased focus and time creates a shorter collections cycle, reducing the amount of time spent collecting on a delinquent account.” – Brad Young, The Top 5 Benefits of Outsourced Collection Services, SWBC Blog; Twitter: @SWBCServices
- Distancing your company from the role of “bad cop” can help to maintain customer relationships. “Retaining existing customers is generally much less expensive than acquiring new ones. By hiring collection agencies, companies distance themselves from the role of bad cop when existing clients are reluctant to pay. The first notice from a collection agency may be enough to spur the customer into action while allowing the relationship between the parties to remain cordial or neutral.” – Five Benefits of Outsourcing to Commercial Collection Agencies, VendorSeek; Twitter: @VendorSeek
- Verify that a collection agency you’re considering is certified and registered in your state. “Members of the Commercial Collection Agency Associationare the only collection agencies certified by the Commercial Law League of America, and they have to pass some stringent requirements to obtain that certification. For instance, the agency must have collected commercial claims for at least four years, have a minimum of five employees, be in compliance with all state and federal laws concerning debt collections — including adherence to the Fair Debt Collection Practices Act— and be in compliance with registration and licensing laws. There is a long list of requirements necessary for an agency to become certified. You can check the CLLA’s site for a complete list of certified members.
“Most states require that collection agencies be licensed in the state where they are collecting debts. If all your debtors are located in one state, it’s easy to hire an agency located in that state, but if not, you may want to hire an agency that is licensed in all 50 states. ACA International provides a list of collection agencies that you can search by state. You can also check to see your state’s licensing and bonding requirements on this state-by-state list.” – 5 Questions to Ask Before You Hire a Collection Agency, QuickBooks Resource Center; Twitter: @Intuit
- Consider an agency’s collection rate in context. “Collection rate is how we describe the track record of success that a commercial debt collection agency has had. We can calculate it quickly by dividing the number of successful collection efforts by the number of attempted collections.
“When evaluating an agency’s collection rate, it is important to consider the context. An agency that attempts a large number of difficult collections will naturally have a lower collection rate than a company that cherry picks only the best opportunities. In those cases, the first company might have a lower collection rate despite producing more impressive results on a per case basis.” – Richard Hart, Collection Rate vs. Contingency Fees: Getting the Most Out of Your Collection Agency, Direct Recovery; Twitter: @DirectRecovery
- Avoid charge-offs by leveraging vehicle location data. “Simply put, vehicle location data is new data that helps you outsmart borrowers trying to avoid payment. So you’ve tried contacting your borrower at all of the locations she provided, but that’s not working. What if you knew that her car hasn’t been seen at her home address for months, but has been seen at a new location? DRN Locations use vehicle location data to tell you whether the addresses you have for making contact are good and to serve up new addresses for making contact. And DRN has more vehicle sightings – over 4 billion, so there’s a good chance we’ve got new vehicle location data for loans in your delinquent portfolio.
“Here’s an example: if you have 200 delinquent loans that charge-off and each loan is worth $10,000 and we have DRN Locations on 10% (or 20 loans), your charge-off reduction could be $200,000. Now imagine the possibilities if DRN Locations were available on more than 10%? It’s highly possible depending on the area.” – Stephen Nethery, Stop Getting the Worst Results from Your Auto Collections “Best Practices”, Digital Recognition Network; Twitter: @DRNData
- Monitor and update accounts regularly. “Monitor your accounts and update credit reports regularly, no less than once a year, for changes in their credit risk profile, so you can raise credit lines when appropriate to increase sales, or are not blindsided with a preventable bad debt. Use payment and credit scoring systems to prioritize collection work to the customers most at risk, or those that do not pay on time unless you contact them. Set up collection strategies in your collection system, with pre-set collection steps and workflow so nothing gets overlooked.” – Best Practices For Credit and Collections, Smyyth Creditek
- Focus on priority accounts. “If cash flow is your concern, as it is for all CFO’s, credit managers, and collectors, it’s important to focus your efforts on those accounts that demand attention before all others. These could be accounts that have orders on hold due, have a long list of broken promises, have large dollar amounts outstanding, etc. After you’ve done what you can there, tend to any other accounts that may need an additional reminder about a payment, etc.
“That makes invoice collection sound easy, we know that it’s not! If you have a larger number of invoices to manage you very likely do not have the time to carefully prioritize a to-do list as described above when your inundated with data entry and other mandatory (yet time consuming) clerical work. Many companies are discovering that they can get around all that through accounts receivable automation which can eliminate your most time consuming tasks and get you back to what matters most, like dealing with those large outstanding invoices!” – Simple and Effective Debt Collection Techniques, Anytime Collect; Twitter: @AnytimeCollect
- Utilize Transaction Analysis techniques. “To be successful in a collection call, you need to discover the problem and resolve the issue. Overcoming objections is an important part of coming to a positive resolution for everyone. However, skills communicating with people are truly the key to success. Your customer will continue to come to you if they are treated with respect and dignity. The individual making out going collection calls must find a positive way to work with your customers to get you paid. By using Transactional Analysis to structure your collection techniques and procedures, you can accomplish just that.
“Transactional Analysis is one of the most accessible theories of modern psychology. Transactional Analysis was founded by Eric Berne, and the famous ‘parent adult child’ theory is still being developed today. Transactional Analysis has wide application in clinical, therapeutic, organizational and personal development, encompassing communications, management, personality, relationships and behavior. Whether you’re in business, a parent, a social worker or interested in personal development, Eric Berne’s Transactional Analysis theories, and those of his followers, will enrich your dealings with people, and your understanding of yourself.” – The Psychology of Collections: Use the Psychology of Collections to Collect the Debt & Keep the Customer, Professional Recovery Personnel, Inc.; Twitter: @prorecoveryinc
- Understand how the customer impacts your business. “Understand the impact of this customer to your business. Both in terms of size and cash flow. Study the history and payment trends of this particular customer. Know the exact amount and reason for the overdue amount. Remember, when you make the call, ask for the full amount and do not assume that there is a problem. Many collectors make the mistake of asking, ‘Is there a problem?’” – Collection Skills Training – Debt Collection, Credit Guru, Inc.; Twitter: @CreditGuruInc
- Send pre-collections notices. “Sending a pre collection notice to a past due account can be effective if done correctly. A business that sends a collection warning under the business letter head is in general not as effective as using a collection agency mailing. However using your business letterhead and stating that the AR debt is going to be turned over to collection agency xyz is one of the more effective debt collection techniques. Using a well known collection agency with name recognition will add leverage to your collection effort.” – Jim Kesel, Debt Collection Techniques, Street Directory; Twitter: @streetdirectory
- Chasing the wrong delinquent accounts can be a costly endeavor. “Our attention is caught by the exceptions, those who do not exhibit the expected pattern of behavior. In evaluating a delinquent customer (or the portfolio of delinquent customers), several factors should be taken into consideration.
- amount owed–a company can afford to devote more time and effort to the collection of large balances than it can to smaller ones. Two pitfalls to be mindful of in this connection are:
- the willingness to write-off small balances (which can add up over a year)
- obstinate, imprudent collection efforts (holding on to the collection for too long).
Either situation can lead to an unprofitable operation, the former through direct credit losses and the latter through a more insidious rise in the costs of recovery. The time to terminate a collection effort is crucial. The decision can make or lose money. Possibly outsourcing of collections based on dollars of exposure should be considered to control collection costs.
- how long has the item been unpaid–consideration of the age of the item is important. The value of the receivable falls rapidly as a function of time, and the longer the debt has been owed, the less likely you are to be paid.
- pattern of payment–note whether there have been partial payments or any effort to settle the debt. Has the customer made any sincere effort attempt to take care of the obligation.
- customer relationship–how long have you been dealing with the customer? If the customer is new, you owe it to them and your company to make your policy on collections clear from the start. Neglecting delinquency at this time is inviting problems forever with the account. If it is an old customer, how has the payment pattern been? How have any delinquencies been cleaned-up in the past? Is there a problem with the product or service?
- previous dealings with the customer–how has the customer lived up to its commitments in the past. Has the account ever been closed and reopened?” – Principles and Methods of Collections, The Credit Research Foundation
- Know when it’s no longer worth it. “Money collection takes a lot of time and energy. Some payments might not be worth the trouble it takes to collect them. If your efforts on a specific account waste a lot of resources, consider cutting your losses. Make a note of the situation for future reference. In some cases, you can write off bad debt.” – Mike Kappel, 7 Tips for Small Business Debt Collection, Patriot Software; Twitter: @PatriotSoftware
- Offer clients alternative payment options. “The collections process is defined as the set of coordinated, appropriate, and timely activities aimed at full collection of loans from clients. The process is intended to convert the MFI’s receivables into liquid assets as quickly and efficiently as possible, while at the same time maintaining the goodwill of the client in case of future transactions. As such, the collections process requires significant interaction with the client, beginning with a careful analysis of the client’s situation and continuing through timely and frequent contact over the duration of the loan. Clients should be offered payment alternatives that are timely and appropriate to each situation, and all collections activities should be recorded to facilitate continuous monitoring and follow-up as well as control of client compliance with negotiated agreements.” – Best Practices in Collections Strategies, ACCION InSight via SmartCampaign.org; Twitter: @SmartCampaign_
- Develop a comprehensive Frequently Asked Questions (FAQ) manual to provide answers and guidance on specific collections-related scenarios. “Enhance or develop an easily searchable collections-focused frequently asked question (FAQ) manual to provide answers to the top drivers of collection-based issues/reasons/resolutions segmented by specific products, services or lines of business (typically includes payment disputes, etc.). Ensure that collections employees have easy access to FAQ manuals presented within online knowledge bases (online portals, Intranet based resources, etc.) so as to impose set standards for all written procedures and policies for collection activities.” – Collections Best Practices, OpsDog; Twitter: @TheOpsDog
- Avoiding common auto finance debt collection mistakes is just as important as following recommended practices. “Of course, most business owners attempt to operate within the bounds of the law, and in fact many are guilty of not doing enough when it comes to recovering debts. Poor debt collection practices of this kind include:
- Not doing sufficient credit checks on customers before extending credit.
- Not spelling out credit terms on invoices and documents.
- Failing to pursue overdue debts in a timely manner.
- Not having a credit policy in place.
- Not training staff on correct debt recovery practices.
- Waiting too long before handing bad debts on to a collection agency.” – Jarrod Kagan, Good Vs Bad Debt Collection Strategies, Consolidated Collections Australia
- Repossession may seem like the easy way out of dealing with difficult-to-collect accounts, but auto finance companies typically lose money on repos. “Every repo has one thing in common: They all lose money.
“Banks lose thousands of dollars on every vehicle that gets repossessed. Most banks and finance companies net only about 30 percent on a financed dollar when they sell a repo at a wholesale auto auction.” – Steven Lang, Auto repo: how to avoid a losing situation, Chicago Tribune; Twitter: @chicagotribune
- Consider offering payment adjustments to help consumers get back on track before resorting to repossession. “Typical customers in repossession represent normal, middle income folks. Based on our data, average annual income is about $36,000 to $40,000 per year. For large lenders who finance new vehicles the average income is even higher, in the $40,000 to $50,000 range. About a third of the customers own homes. So why didn’t they pay their auto loan? Usually there has been either a temporary disruption in the ability to pay (e.g. unemployment followed by a new job), or a significant reduction in total household income (e.g. spouse lost a job). The customer still has the ability to keep making payments, but cannot afford to catch up on past payments or continue making large payments. Sometimes a payment adjustment is all that is needed to get them back on track.” – Seven Myths About Auto Repossession, Auto Finance News; Twitter: @AutoFinanceNews
- Support your collection operations with updated technology – in most cases, technology upgrades and implementing data analytics solutions actually save companies money. “Size up your legacy systems front to back and figure out how you’re spending your money for things like upkeep, security, licensing, and latency of information availability. Based on that assessment, consider your options, which might include replacing an entire system, optimizing current technology, or switching to an external provider. Embrace agility by framing needs around the business problems at hand, instead of making requests for specific technologies. Also, make sure that whatever systems you use are up to the job of supporting modern demands for seamless, omnichannel engagement with customers and can provide the analytic heft on the back end to process behavioral data for insight and a competitive advantage.
“When you start digging into your unexamined costs, you can anticipate uncovering deeper insights and opportunities to improve your collection operations and enhance your bottom line. Whether the focus is on people, processes, or technology, many solutions involve questioning assumptions about how things have been done before. Questioning the status quo and asking how things might be done better should permeate the entire organization, from the CEO all the way to front-line agents and support staff. Then the total cost of doing business will be plain to see, and that’ll truly benefit the bottom line.” – Gary Dorman, Uncovering the Hidden Costs of Debt Collection: Refining Technology Tools, Waypoint Resource Group; Twitter: @wrg_gdorman, @waypointrg