Don’t Be Delinquent:Some Lessons on Collections

Leslie HoffmanAccion New Mexico ∙ Arizona ∙ Colorado

Lend for America SummitOctober 28, 2012New Brunswick, NJ

Agenda

• Who are we and why are we here?

• The philosophy of collections as mission

• The psychology of strong repayment

• The approach

• The daily practice

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First things first…

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Who are we in the room?

Why? The business case for collections

Repayment has direct economic viability implications for

microfinance:

• Prevents economic value from exiting the balance

sheet

• Can represent a major cost center if clients fail to

pay

• Reputational risk

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The stakes are high

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Nicaraguan protesters during an earlier period of "No Pago" movement activities

Image credit: El Observador Económico

Our work is our harbor

• Our mission is empowerment

• Our method is service

• The magic is the change clients create in the world

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Collections as a deep connection

• It is the most intimate mission-centered part of what we

do

• It is the time to deliver the value we’ve promised our

clients

• How you feel about this work will show

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Psychology matters in collections

Behavioral psychologists tell us:

• Ambivalence and resistance to persuasion are core

human traits.

• Motivation is formed in the context of relationships.

• No one is completely unmotivated.

• We tend to believe what we hear ourselves say.

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Your psychology matters

• If you’re arguing for change, you may be in the wrong

role.

• Help the client discover how he/she can make

changes.

• People respond to options, not obstacles.

• Remember your kindergarten fire safety rule!

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Your approach makes the connection real

• Invest early and often in the relationship

• Be sure you have the right tools

• Have fun!

• Seriously, fun is possible!

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Good quality must start early

• Marketing and outreach

– Messages that support philosophy

• Credit application process

– Offers value, is thorough

• Underwriting

– Codified, clear standards

• Ongoing account education

– Send regular statements

• Great customer service at every step!

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Collectors as underwriters

• Collectors underwrite past-due accounts

• What can a review of The Five Cs of credit tell you?

• Character

• Capacity

• Creditworthiness

• Collateral

• Conditions

• Verify, verify, verify … and write it all down.

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Is everyone on the same page?

• How does your group define key terms?

• Who’s collecting and when?

• What expertise and resources are available? (i.e. legal,

auction, repo, etc.)

• Set goals and expectations for past-due metrics:

– Expected portfolio at risk

– Expected net write-offs

– Expected customer service

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The collections cycle

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• “The Days of Our Lives” as collectors:

– Start: Loan X is past due.

– Fact:

• We now know that this debtor faces a higher risk than

the one originally foreseen when the loan was

underwritten.

– Objective:

• Find out what is going on…

You collect before you dial

• Before the call

• Your opening

• Overcoming objections

• Appeal to their desire for change

• CLOSE the deal

• Follow up

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Tips on preparation techniques

• Do you have an opening that feels comfortable and is

effective?

• Do you walk through options and role play with a

colleague beforehand?

• What’s your motivational appeal?

– Core values

– Honest broker

– Maintain good credit

– Future business, etc.

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My organization’s protocol at a glance

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And if you need to renegotiate the loan?

• Check your docs!– Be sure the original loan documentation is in order

• Chat up the borrower– Now is the time to emphasize relationship; dig until

you find the reason for trouble.

• Pull a credit bureau– Recent activity can reveal a lot.

• Are there other lenders involved to consult?

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Before you pull the trigger on a new agreement (workout)

• Know where your collateral stands

– Are landlord waivers and subordination agreements in

place?

– Are you sure your lien position is perfected? (check

UCC status, mortgage/deed status)

– Is it where you expect it to be and in the condition you

expect?

• Know where Uncle Sam stands

– Tax liens can throw a major wrench in things

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Injecting fun and joy is key!

• How do you celebrate portfolio quality activities and

victories?

• What do you do to continue to improve your knowledge

of lending and how can you share that with colleagues

and clients?

• Do you change the routine to inject some fun?

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Bringing it back to mission

• These are hard times for borrowers and lenders -- find

common ground.

• See yourself as a problem-solver, not an enforcer.

• Celebrate small victories every day.

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Resources and suggested readings

Training• Your state’s independent community bank association

or chapter of the American Bankers Association (www.aba.com)

• Risk Management Association www.rmahq.com

Readings:• Motivational Interviewing: Preparing People for

Change, Rollnick & Miller, 2002.• Crucial Conversations: Tools for Talking When the

Stakes are High, Patterson, et al., 2002.

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Myths you can now help dispel!

• “It’s the economy’s fault”

• Being a good collector = years of collections

experience

• Collections = clean-up work

• Collections ≠ fun

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Investing in individuals.Improving our world.