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Recovering “Bad Debt”…may Start at “Home”

Despite reasonable efforts to KEEP the customer paying, accounts will nevertheless default, be “charged off” and become your “bad debt”. Attempting to collect some of that “bad debt” “In house” should be your first consideration. Here are some basics that need to be understood in that consideration process.

  • Collection and recovery personnel should be separate and separated from the other Company departments; personnel assigned should be entirely devoted to and focused upon the recovery of “bad debt”.

  • Collection personnel must be understanding and articulate people with clear knowledge WHY the account defaulted.

  • In house personnel must be trained to understand compliance related rules and laws affecting their collection conduct vis a vis their consumer customers [do’s and don’ts of consumer collection…i.e. Fair Debt Collections Practices Act and Unfair, Deceptive or Abusive Acts or Practices (UDAAP)]

  • There must be clear, dedicated and knowledgeable supervision for collection and recovery staff

  • Portfolios of accounts must be clearly assigned and a clear protocol defining a timeline of activity and goal expectations laid out for each account.

  • Management needs to allow supervisory authority to set, monitor and measure specific goals for each person based on reasonable expectations of recovery *

  • The department will require proper tools, system to pull account information and maintain account notes and histories. The system should allow for the production of correspondence subject to supervisory review. **

  • Utilize at least these two “in house” sub strategies:

  1. Deeply discounted settlement plans to capture some of the losses.

  2. Flexible but permissible “charge off” statuses to help customers vis a vis credit reporting. In house collections may obviate the need or requirement to report the “bad debt” to credit reporting agencies. “In house” settlements may allow for a more favorable report in accordance with the Fair Credit Reporting Act. ***

The question of whether or not to set up In House collections and recovery is not easy or inconsequential. The answer will lie in ownership’s philosophy and willingness to tolerate the costs and levels of distraction an in house program will create. Again, there needs to be an evaluation of whether the costs and distraction will yield a reasonable return on investment.

NEXT: Outsourcing …… Important considerations

* Reasonably achievable goals must cover the financial expectations set by management. Otherwise, an “in house” collection process is not only a drag on the business but detrimental to its primary objectives… which is focusing on acquiring and keeping auto finance customers paying. Ultimately, $$ goals are the measure of success along with few if any customer complaints.

** Telephone recording and monitoring is an issue to be addressed depending on the number of collectors.

*** Counseling with an FCRA expert is crucial in planning In House departments.

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