This blog is part of a series, which includes recommendations for a robust and comprehensive collection strategy. These blogs serve as a guide to help lenders protect their organization and mitigate losses by preparing for a downturn in advance. Read part one and part two of the series.
In our last article, we discussed early delinquency strategies, and how lenders can segment high risk, low priority and high priority accounts. In early delinquency, the goal is to identify customers at risk of default, allocating resources effectively to engage and rehabilitate the customer.
This article will examine the next phase of the delinquency continuum: serious delinquency. We’ll provide strategic recommendations for lenders to efficiently stop the customer-associated delinquency from rolling forward.
Serious delinquency: 30–59 days past due
Once the debt is 30 days past due, the customer now owes two payments. At this point, the probability of resolving the delinquent amount reduces to approximately 50%. If lenders don’t resolve the delinquency at this stage, it almost certainly becomes a loss. As a result, this stage is considered serious delinquency, defined as 30 to 59 days past due.
At 30 days past due, the customer now likely has a negative mark on their credit report, which could lead to restricted access to credit, and an increase in interest rates for other consumer credit products, such as variable rate credit cards, home equity loans or lines of credit. These repercussions limit the customer’s options, which is why lenders should implement strategies that stop the account from progressing to 60 days past due.
Contact the customer efficiently
In the early delinquency stage, we discussed methods for contacting customers, such as the use of an auto-dialer, emails or a self-service digital collections portal. In this stage, we’ll focus not on the approach, but on the information used to engage the customer.
At 30 days past due, lenders typically have evaluated the account to determine the appropriate treatment strategy, and the delinquent account is then routed to collectors for contact efforts. The collector receives accounts distributed to them from an auto-dialer. If the number from the customer data file is determined to be invalid, they will search – also known as skip trace – for a better phone number. With a high volume of delinquent accounts at this stage, it’s inefficient, less than ideal, and arguably a waste of resources for a collector to search for contact data.
To improve this process, lenders should utilize a high quality external data source to power skip trace efforts. They should frequently validate the data from such external sources for accuracy. Lenders should also automate the skip process by using real-time call outs (API) or a batch file, allowing them to both receive high quality contact data and minimize wasted resources in searching for it. Automating the skip process enables collectors to contact customers more efficiently.
Improve account prioritization and treatment strategies
While the serious delinquency stage has fewer accounts than early delinquency, there will still be a high volume of accounts that require work. Therefore, it is necessary to improve the prioritization process to identify the accounts that require the most intensive efforts.
To accomplish this, many lenders create behavior scores to determine which accounts they should prioritize. Lenders usually build behavior scores utilizing internal data, such as contact preference, payment history, loan balance, and other transactional or behavioral data. These scores can be effective and are a great first step toward improving the process. However, failing to include insights on the customer’s comprehensive financial health will usually yield an incomplete picture. At this stage – with a focus on stopping progression – lenders should ingest and leverage external credit data that provides a holistic view of the customer and maximizes the effectiveness of the behavior score.
Lastly, to optimize account treatment strategies, lenders need powerful data analysis capabilities and expertise. Often, large lenders utilize in-house data science teams to evaluate their strategies. These teams use performance data to provide recommendations, which will further enhance account treatment strategies, maximize recoveries, and increase efficiency. Lenders that can’t leverage in-house data analysis teams should partner with external firms that specialize in it. When lenders use data analysis to identify slight improvements in account treatment strategies, they can see significant long-term returns.
In the serious delinquency phase, lenders are best served to stop delinquent accounts from progressing. Lenders that employ the strategies outlined in this article are more likely to see higher recoveries and waste less resources.
 TransUnion analysis of roll rate performance