Debt collection often carries a negative connotation, frequently associated with pressure tactics or aggressive recovery methods. However, this perception does not reflect the evolved reality of collections in the modern financial ecosystem.
The practice of collections and recovery has undergone a significant transformation, from being viewed merely as a means of recovering overdue payments to becoming an essential component of customer engagement and financial support. It is important to differentiate traditional notions of “Wasooli” from what effective collection truly entails today.
Modern debt collection is not about threatening; it is about understanding, communication, and resolution. Just as businesses have embraced digitalisation and hyper-personalisation in the way they deliver products and services, these same principles are now critical in the collection process. This shift in mindset is not only necessary for improving efficiency but also for enhancing the overall customer experience.
A common misconception is that non-payment of loans or EMIs (Equated Monthly Instalments) is always driven by an unwillingness to pay. In reality, the reasons are far more nuanced and varied. Financial stress can occur due to temporary cash flow mismatches, such as a delay in salary or unexpected expenses. In some cases, customers may lack clarity on the payment process, be unfamiliar with digital payment tools, or have limited financial literacy.
Additionally, some delays are the result of service-related dissatisfaction, where borrowers withhold payment due to perceived grievances, unaware of the long-term implications for their credit profile. Of course, in a minority of cases, there may be intentional delinquency or fraudulent activity.
A truly effective collection process goes beyond simply assigning cases to agents and tracking the number of contact attempts. Instead, it requires a comprehensive, empathetic, and personalised approach to facilitate resolution.
This involves several key components:
• Understanding the borrower’s complete credit persona, which includes not only their repayment history with the lender but also their overall behaviour across different credit products and institutions.
• Diagnosing the root cause of non-payment and addressing it appropriately, whether through education, flexibility, or restructuring.
• Using non-intrusive and respectful communication strategies that remind rather than pressurise.
• Providing flexibility, such as allowing borrowers to revise EMI dates or restructure loan terms when appropriate.
• Where necessary, offering settlements as a pragmatic tool to minimise loss while still maintaining a positive relationship with the borrower.
In today’s complex credit landscape, most borrowers hold multiple lines of credit, including personal loans, credit cards, and BNPL (Buy Now, Pay Later) services. Therefore, understanding a borrower’s behaviour requires a holistic view that extends beyond a single lender’s portfolio. This is where the role of alternate data sources becomes critical.
By leveraging additional data such as
- Data analytics from the credit bureau,
- Digital payment patterns,
- Income flows,
- Spending habits, and
- Behavioural indicators,
Collections teams can tailor their approach to suit the unique profile of each customer.
Empowering collection agents with such data insights, coupled with the right tools and training, enables differential collection strategies. Not every case requires the same treatment; some may need soft reminders and flexible options, while others might need structured intervention.
Technology, particularly AI, ML, and advanced analytics, plays a vital role here by helping segment borrower profiles, prioritise cases based on risk and intent, and recommend appropriate next steps.
Moreover, customer education is an often-overlooked but essential pillar of effective collections. Informing borrowers about the consequences of missed payments, such as damage to credit scores, increased interest costs, or future borrowing limitations, can influence behaviour in a positive and lasting way.
Ultimately, the goal of any modern debt collection process should be twofold: optimise recovery while preserving the customer relationship. When borrowers are treated with respect, supported during difficult times, and provided with clear options, the chances of resolution increase significantly. This approach not only improves recovery rates but also strengthens trust and loyalty.
In conclusion, debt collection is no longer just about recovering money; it is about engaging meaningfully with customers, understanding their financial journey, and enabling them to meet their obligations in a way that is sustainable and respectful. As lenders embrace this shift, the benefits are clear: improved operational efficiency, reduced losses, and most importantly, a significantly better customer experience.
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Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial, legal, or professional advice. While every effort has been made to ensure accuracy, readers should verify details independently and consult relevant professionals before making financial decisions. The views expressed are based on current industry trends and regulatory frameworks, which may change over time. Neither the author nor the publisher is responsible for any decisions based on this content.
Sachin Seth, Chairman CRIF High Mark and Regional MD CRIF India & South Asia
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