Most loan portfolio managers have a decent idea of the number and amount of loan payments that are delinquent, but they don't always have the tools to collect effectively . Collection performance is limited by the quality and accuracy of information provided by their mortgage management software. Yet, trying to keep the necessary information - loan balances, payment due dates, phone numbers, and notes - current and organized just with Excel or in a Word file can get unwieldy fast.
For a loan management strategy to be profitable, supervisors need to minimize administrative costs with an organized and highly automated workout department. Ideally, the software being used should be focused on loan collection and payment processing but it should be flexible enough to adapt to your organization structure.
If you are still relying on a manual process or if you just have your notes in spreadsheets, your organization will not have a way to measure the effectiveness of your outreach efforts. Surprisingly even some of the larger institutions with a sophisticated investment portfolio and loan management computer systems often rely on older technology when it comes to tracking their delinquent accounts.
This stark fact is surprising because the best way to reduce delinquencies and increase fund recovery. Our internal research has shown that the two most efficient loan management involves these steps:
- Productive telephone follow-up
- A consistent and well tracked mailing campaign
- Foreclosure attorney management
- A site visit to the subject property
- Most importantly a way to track these steps and identify the problem accounts.
Evaluating Software Programs
The challenge is finding cost-effective collection software to assist in these efforts. Loan management software should provide a method to record information, correspondence, phone calls and any other activity. Optimally it also provides decision support reports.
Much of the collection software in the market today is generally designed to run for in your local network. In this day and age being able to access your system through the web should be a must in your checklist so that your team can easily collaborate.
Selecting the right loan management software is comparable to hiring a new employee: both are somewhat of a gamble, but there are ways to lower your risks. You should have the right checklist of questions to ask and you should be aware of the potential pitfalls. This will greatly aid the selection process.
The selection of your system can be facilitated by following these recommendations:
- Conduct a needs analysis. Determine how work and documents flow through the loan servicing department now and how this process can be enhanced and optimized. Identify the bottlenecks, and try to solve them first. Avoid the temptation to find an all-encompassing solution. It probably does not exist.
- Involve the right people in the decision process. Usually, the collection software selection is performed by upper management. However, most of the interaction with the software will done by workout specialists and supervisors. The specialists who will be working on the system should evaluate each software option and should keep in mind such productivity data as the number of calls placed in a certain time frame, the length and results of those calls, and the number of unanswered calls. Involving your employees in the decision process promotes the idea of ownership. There is likely to be less push back of a new system that your employees helped select.
- Watch out for hidden costs. Establish a budget, and be prepared to identify extra costs for a selected system. Costs to keep in mind include upgrades, customization and modifications, backup systems, and training.
- Choose short-term, cost-justified solutions for both hardware and software. Collection technology is moving too rapidly to commit to long-term solutions. For example, an internal network and the corresponding software may be powerful; however, there are extremely high start-up and training costs associated with this choice. In addition, this will tie your employees to working from that location.
- Ensure that the system is user-friendly. Possibly the most critical feature to look for in collection software is a menu-driven format. Menu-driven software shows users what to do in a step-by-step fashion, thereby reducing training costs. Look for provided help files. Read the accompanying documentation. Users of the system should be able to learn how to use the system and to train others to do so in a short period of time.
- Place a premium on flexibility and control. Ensure that the capability to tailor specific procedures exists. For example, perhaps you want to send letters at 15 and 30 days past due before calling a client, while a colleague wants to send one letter 10 days before telephone contact. The selected system should have the ability to accomplish either task. Modular programs that can be integrated with other software, such as loan origination or tracking programs are desirable. The move to automated collection may instigate some operational difficulties at the beginning, but consider the difficulties of having to change to yet another system in a few years because the software package could not grow with the loan portfolio or integrate new loan products.
- Look carefully at the offered features. Determine which are useful and which are superfluous. Observe how the system performs using loans the company already has in your books, such as simple interest, adjustable rate, and graduated payment loans.
Collection Performance: Beyond Automation
Automation is an important factor in reducing delinquencies, but it is not a panacea for delinquent loans. Effective collections begin with training staff members in successful collection techniques. Credit departments of every size can improve performance by establishing objectives for the collection supervisor, organizing the collection area, and listening to workout specialists' suggestions.
Deciding which loan management software best meets your needs can be exhausting and confusing. Loan portfolio managers need to be pragmatic when assessing these needs and determining how automated solutions can meet them. The right system will allow your team to greatly expand their efficiency and this will translate into significantly enhanced cash flow.
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