Cosmin Cosma: Field collections - when, why and how?

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• Using field collection tools to improve retail collections effectiveness
• Why is field collection a valuable approach in retail banking?
• In what stage of the process should this tool be used?
• What financial products can be addressed with field collections?
• How to build KPIs and monitor field collection activity
• Internal field collection unit or outsourced
• A Field collection team in a financial leasing company
• A Field collection department for mortgage loans

Published in: Economy & Finance, Business
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Cosmin Cosma: Field collections - when, why and how?

  1. 1. FIELD COLLECTION: When, Why and How? Using Field Collection to Improve Retail Collections Effectiveness Cosmin Cosma Head of Strategy and Field Collections Volksbank, Romania
  2. 2. Introduction: Debt Collection & The Rolling Stone The myth of Sisyphus The Collection Manager 2
  3. 3. A couple of questions…. 1/ Why is field collection a valuable approach in retail banking? 2/ When should this tool be used in the collection process? 3/ What financial products can be addressed with field collection? 4/ How to build KPIs and monitor field collection activity? 5/ Internal field collection unit or outsourced? ….no answers & 2 case studies.Case 1: Field collection team in a financial leasing company Case 2: Field collection department for mortgage loans Field Collection: When, Why & How? 3
  4. 4. 1/ Why is field collection a valuable approach in retail banking? Field Collection main arguments Advantages Threats & Risks • Increased psychological impact • Increased quality of communication • Increased collaboration with the customer • Case by case collection approach • Support for skip tracing activities • Versatility for other collection/recovery related tasks (collateral inspection and/or repossession, local representation in auctions, local remarketing activities for distressed assets, etc.) • Regional presence – local environment insights + potential for solving one off tasks for other business units (e.g. corporate) • Cost (one of the most expensive internal collection unit) • Management challenge (remote management) • Staffing & Training challenges • Reputational risk for the financial institution (in case of bad field collection practices) • Fraud potential (depending on the empowerment level) • Employee safety risks (in case of bad practices) • High staff turnover (depending on incentives) 1/ “Show me the money!” message 2/ Find solutions with debtors! 3/ Know your debtors! 4/ Know your collaterals! 4
  5. 5. 2/ When should this tool be used in the collection process? • The financial product (SME loans – can be addressed very early vs. secured loans – only after a centralized wash) • The effectiveness of other collection channels (i.e. Sales, Call Center, external agencies) • Market evolution (spikes in collection trend can determine a field collection approach earlier) • Bucket volumes (the potential reach of customers is limited so a mix of delinquency stage and exposure volume can be applied to set the scope of field collection approach) •Scale – in order to make sense It depends... Field Collection Factors to consider for strategy setting 5
  6. 6. 3/ What financial products can be addressed with field collections? • Secured loans rather than unsecured • Big exposure contracts rather than small ones • Field collection is an expensive & intensive customer contact. • It takes on average more than one contact to cash a debtor. • The potential cash-in = overdue amount. The decision to address different product portfolios is, in the end, a cost/benefits analysis problem. The formula goes like this: [(Average overdue of allocated customers) x (cash collection efficiency)] - [(Cost of a visit) x (average visits per customer)] and should be positive. Since the cost of a visit and the average number of visits are the approximately the same for all the financial products, the average overdue and cash collection efficiency are fundamental to decide the product portfolios. General Assumptions Rules of Thumb 6
  7. 7. P&L •Cost of Risk •Recoveries Risk Division • LLP volumes • NPL volumes • NPL Recoveries Collection Division •Stock inventory management by business unit •Cash-in recoveries • Roll back/over rates Field Collection Unit •Roll back/forward volumes •Cash recoveries (NPL/ non NPL) 4/ How to build KPIs and monitor field collection activity? Top Down Approach Field Collection Agent - Individual KPI -Roll Back volumes*/ initial allocated volumes => Roll back target (volume) -Cash collected / overdue for allocated contracts => Cash collection target (amount) * includes restructured contracts Operational hints • The individual allocation of contracts and target objectives should be implemented on a monthly basis. • The monitoring should be done at least on a weekly basis. 7
  8. 8. 5/ Internal field collection unit or outsourced? 1. Are there external service providers on the market to offer proper field collection activities (with good reputation, practices and references)? 2. If we intend to originate and implement restructuring solutions through field collection agents, do we have the capabilities to develop an efficient workflow together with the third party? 3. Do we have the resources to manage and monitor the field collection outsourced? 4. Do we need to accommodate some other collection tasks in field collection on local and can all be outsourced? (e.g. asset inspection, asset repossession, legal action representation, etc.) 5. Is cost and benefits analysis in favor for outsourcing? If YES for 5 times, GO AHEAD, negotiate the commission and sign! Checklist for outsourcing decision 8
  9. 9. Case 1 Field collection team in a financial leasing company B1 B2 B3 B4 B5 B6 B7 B8 LATE COLLECTION •External agencies repossession •Restructuring Negotiation •Forced Execution External repossesion decision (if impossible in FC) EARLY COLLECTION •Call contacts •Restructuring negotiation •Centralized actions (SMS, letters) FIELD COLLECTION •Field visit •Restructuring Negotiation •Collateral inspection •Asset repossession 0DPD Financial Leasing Company Field Collection Team : 12 agents, countrywide coverage Products: mainly Auto leasing contracts + some equipment leasing accounts Customers: mainly SMEs + some Micro/residential accounts 9
  10. 10. Case 2 Field collection department for mortgage loans Sales Early Collection Field Collection Late Collection Restructuring Restructuring underwriting and approval •Field visit •Restructuring Negotiation •Voluntary sale transactions •Collateral inspection •Foreclosure file preparation •Foreclosure process management •Restructuring Negotiation •Amiable sales agreement 0 DPD •Restructuring negotiation •Auction participation & foreclosure support 90 DPD 150 DPD The main KPI Termination file preparation Foreclosure process start •Call contacts •Restructuring negotiation •Centralized actions (SMS, letters) •Foreclosure file preparation •Foreclosure process management •Restructuring Negotiation 180 DPD Restructuring underwriting and approval 120 DPD BEFOREAFTER •Call contacts •Restructuring negotiation •Centralized actions (SMS, letters) Universal Bank Field Collection Team : 16 agents, located in regional centers Product: only retail mortgage loans 10
  11. 11. Thank you! Cosmin Cosma Head of Strategy and Field Collections Volksbank, Romania cosmin.cosma@volksbank.ro M: +4(0) 730 018 529

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