Why Outsourcing Collections Makes Good Business Sense And Benefits Lenders.

The greatest challenge for lending institutions has been the high rate of payment defaults. This high default rate drives lenders to invest additional costs to recover loans that may eventually become debts. The consequences of non-performing loans go beyond the lending institutions. It can lead to severe financial distress for lenders, leading to a widespread negative impact on economic growth and development, which is costly in emerging nations. Excessive delays in debt recovery might have serious consequences. Borrowers may be encouraged to disregard their payment obligations and take advantage of a weakness in the debt recovery process.

For this reason, outsourcing recoveries has become a trend in recent years, with many lenders opting to outsource the recovery process to third-party collectors. There are several reasons why outsourcing this aspect of your business makes good business sense. This article will explore the advantages and reasons lenders should consider this option.

Two sorts of benefits are associated with outsourcing collections: financial and operational.

Financial Benefits

Lower Operating Costs:

Cost reductions are one of the significant advantages of outsourcing loan recovery. Lenders can reduce the costs associated with hiring, training, and retaining a recovery team by outsourcing collections, including salaries, benefits, and office space. The average annual salary of an in-house recovery agent is roughly $70,000, according to research by the International Association of Commercial Collection Agencies (IACCA). Lenders can lower their costs by up to 50% by outsourcing collection efforts. In Africa, we have observed that the average salary for a recovery staff ranges from?$100 — $500?per month, depending on the country. This is a high cost for a young lender as they scale their internal recovery personnel.

Increased Recovery Rates:

According to research by the American Collectors Association, professional collection service providers recover two to three times more money than internal collection activity yields. Since debt recovery agencies have years of experience collecting delinquent loans, they are well-versed in the most effective strategies for a successful recovery. This is because they have regularly collected debts over time and possess skills in debt recovery, unlike those who take on debt recovery as a part-time engagement.

Case Study:

Bank XYZ, a prominent financial institution, had challenges with its in-house recovery team, including high turnover rates, low recovery rates, and dissatisfied customers. To overcome these obstacles, Bank XYZ outsourced its debt collection operations to a recovery agency. As a result, the bank’s recovery rates and customer retention improved significantly. Additionally, the bank benefited from reduced operating costs and increased focus on its core business activities.

Operational Benefits

Increased Focus on Main Business:

The goal of any successful business is to maximise output and revenue. The best way to increase your productivity as a lender is to outsource work outside your area of expertise. It will save you time, money, and stress.

Outsourcing collections allow lenders to concentrate on their core business activities, such as loan origination, loan servicing, and risk management, while guaranteeing that their non-performing loans are collected. Leading to improved productivity, enhanced customer satisfaction, and reduced stress on internal staff.

Access To The Latest Collection Technology:

Typically, collection agencies are more equipped with the latest technology and other resources, such as predictive dialers, automatic call distributors, and loan recovery software, that may be too expensive and unjustified to be built internally. These technologies improve the efficiency and effectiveness of the debt recovery procedure, resulting in a higher recovery rate.

Compliance With Industry Practices:

Recovery agencies are often aware of the most recent industry regulations, such as the Fair Debt Collection Practices, and they take steps to ensure compliance with these regulations. This safeguards lenders from possible legal action and reputational damage.

Scalability:

Debt recovery agencies can significantly increase scalability for businesses by providing specialised knowledge, resources, and technology to improve debt recovery rates and lessen the workload of in-house debt recovery teams. Debt recovery agencies often have extensive experience and expertise in debt recovery, including legal requirements, industry regulations, and best practices. This expertise can help businesses navigate the complex and often confusing world of debt collection, reducing the likelihood of errors and legal problems.

Also, debt recovery agencies can often provide a range of customised solutions and services to meet the specific needs of businesses, including tailored payment plans, negotiation and persuasion strategies, and reporting tools. This can help lenders adapt to changing circumstances, such as shifts in market conditions, regulatory changes, or debtor behaviour.

Case Study:

Lender A is a digital lending organisation experiencing a rise in delinquent loans. Lender A opted to outsource its collections to a specialised recovery agency with experience in the consumer lending market after assessing the financial and time requirements necessary to establish a collections team. Lender A discovered an improvement in its non-performing loans after three months of working with the debt recovery company and assigned more loan portfolios to the company.

The Role Of BFREE

If you’ve finally decided to outsource your collection efforts, the crucial thing to think about is choosing the best agency that shares the passion to meet your brand’s and business needs. That’s where BFREE comes in.

BFREE is an ethical credit management company with a team of experts with knowledge and technology to handle the recovery process efficiently and effectively while ensuring compliance with all laws and regulations. We have a wide range of products, such as self-service and AI-driven automated collections, as well as contact centre solutions that are more effective at reducing non-performing loans than an in-house collection team.

At BFREE, we take great pride in our capacity to serve not only as an ethical collection company but also as a partner and an extension of your company. Collecting debts can be challenging; therefore, we offer qualified personnel to complete collections on your behalf. To help customers pay back their debts, our agents take the time to learn about the borrower’s current financial situation, provide relevant financial education, and make flexible repayment plans.

Outsourcing loan recovery to BFREE is an innovative and strategic move for digital lenders and banks that want to improve their loan recovery performance and move their businesses forward. We have created a workflow that has shortened the time needed to get paid. We have also helped commercial banks, microfinance institutions, and digital lenders increase their collection rates and reduce losses.

We have the tools and resources to help you collect as much as you need. Our processes can be easily adjusted to accommodate the growth or reduction of your loan portfolio, ensuring consistent and effective collection performance throughout. This can contribute to your long-term success.