[\/vc_column_text][vc_custom_heading source=”” text=”Traditional Collection Methods” link=”” font_container=”tag:h3|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]Loan collection is usually a process which is highly regulated. As the creditor wants to get back the loan with its interest, they usually offer the loan with either a mortgage or a guarantor to back the debtor. The debtor enters into a legal agreement with the lender to repay the loan by a particular time and date. <\/span> [\/vc_column_text][vc_column_text]<\/p>\n You May Also Like: Latest Trends in Loan Origination<\/a><\/p><\/blockquote>\n [\/vc_column_text][vc_column_text]When it comes to collecting back the loan, banks usually two methods of collection. As loans are paid back to EMIs, the banks do not intervene or disturb a customer if the payment is prompt and on time. They maintain a cordial relation with the debtor and accord them with further credit proposals if the client exhibits discipline in the repayment process. <\/span>[\/vc_column_text][vc_column_text]However, not all debtors can pay back on time. Owing to various reasons, they may default on the payment of their owed capital. Such defaulters are usually provided with several opportunities to pay back their owed sum. <\/span>[\/vc_column_text][vc_single_image image=”11546″ img_size=”medium” alignment=”center”][vc_column_text]<\/p>\n Image Source: Tandem Magazine<\/a><\/p>\n [\/vc_column_text][vc_column_text]Following methods are usually undertaken to ensure that the debtor is legally requested to fulfill his commitment:<\/p>\n [\/vc_column_text][vc_custom_heading source=”” text=”Collection Agencies” link=”” font_container=”tag:h3|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]When none of the aforementioned steps bear fruit, the bank usually writes off a loan and tries to adopt one of two steps to recoup whatever it can on the defaulted payment. While mortgaged properties may be auctioned off, on loans that do not have a collateral, the banks usually enlist the services of a collection agency<\/strong>. For the first six months of delinquency, debtors deal with a First-Party collection agency. This is usually the creditor\u2019s internal collector. The debtor, in this case, is the second party. This may be an ideal time for the debtor to settle your debt as no middlemen are involved, and the credit scores of the borrower will remain good.[\/vc_column_text][vc_single_image image=”7298″ img_size=”medium” alignment=”center”][vc_column_text]<\/p>\n Image Source: Consumer Finance<\/a><\/p>\n [\/vc_column_text][vc_column_text]<\/p>\n When the first step does not bear fruit, the lender may usually assign the debt to a third-party agency. This is usually a specialized loan collection agency. At this point, the debt is still owned by, and owed to, the original creditor. [\/vc_column_text][vc_single_image image=”11551″ img_size=”medium” alignment=”center”][vc_column_text]<\/p>\n Image Source: US News<\/a><\/p>\n [\/vc_column_text][vc_column_text]<\/p>\n [\/vc_column_text][vc_column_text]<\/p>\n You May Also Like: Loan Origination \u2013 A Critical Step in Loan Process<\/a><\/p><\/blockquote>\n [\/vc_column_text][vc_column_text]<\/p>\n When it comes to loan collections and recovery, NBFCs (Non-Banking Financial Companies<\/a><\/span>) and MFIs (Micro Financing Institutions) face far greater hurdles than banks themselves. <\/span>[\/vc_column_text][vc_column_text]<\/p>\n Given the fact that both these organizations operate in the unorganized labour sector where they cater to low income and BoP class of borrowers such as farmers and daily-wage labourers, the likelihood of their customers defaulting on payment is far higher than in the organized sector.<\/span>[\/vc_column_text][vc_column_text]<\/p>\n As these organizations increasingly come under the purview of regulatory authorities, the process of collection comes under scrutiny and they face issues with respect to following the tough guidelines that have been imposed on by central banks.<\/span>[\/vc_column_text][vc_column_text]<\/p>\n Most of the customers who avail loans from these institutions are not tech-savvy and do not have access to well functioning bank accounts. Hence, most of their transaction has not been made digital and they do not get the flexibility of paying through small installments.[\/vc_column_text][vc_column_text]<\/p>\n You May Also Like: Why Should You Use A Cloud-Based Loan Management Software?<\/a><\/p><\/blockquote>\n [\/vc_column_text][vc_custom_heading source=”” text=” Modern Collection Process” link=”” font_container=”tag:h3|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]Where traditional collection processes have faltered, the techniques and practices adopted as a part of the modern <\/span>collection management systems have gone a long way to address several pain points that were encountered in the earlier systems. <\/span> [\/vc_column_text][\/vc_column_inner][\/vc_row_inner][vc_empty_space height=”10px”][vc_column_text]<\/p>\n [\/vc_column_text][vc_single_image image=”16730″ img_size=”full”][vc_empty_space height=”12px”][vc_custom_heading source=”” text=”Advantages of Modern Collection Process” link=”” font_container=”tag:h3|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]<\/p>\n [\/vc_column_text][vc_column_text]<\/p>\n You May Also Like: How Mobility is transforming the Lending Sector<\/a><\/p><\/blockquote>\n [\/vc_column_text][vc_column_text]<\/p>\n Technology has a crucial role to play in weeding out the inefficiencies in loan <\/span>collection process that is not just beneficial for the lender, but also for the client.<\/span><\/p>\n [\/vc_column_text][vc_column_text]<\/p>\n Technology has changed several industries and brought efficiencies to the existing processes. The field of loan collection badly requires innovations in order to improve collection efficiency and recover bad loans. Leveraging the power of technology<\/a><\/span>, credit lending institutions look to adopt methodologies that are effective in helping them offer better deals to the debtors and help them recover loans without any hassle and maintain goodwill with the customer.[\/vc_column_text][\/vc_column][vc_column width=”1\/4″][stm_sidebar sidebar=”527″][\/vc_column][\/vc_row][vc_row][vc_column][stm_post_comments][vc_column_text]<\/p>\n [\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":" [vc_row][vc_column width=”3\/4″][stm_post_details][vc_custom_heading source=”” text=”Debt Collection System” link=”” font_container=”tag:h2|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]Debt collection process involves pursuing payments of debts that have been owed by individuals or businesses. Debt collection has been prevalent since the early days of banking as it is the chief source of income for banks. This is an important […]<\/p>\n","protected":false},"author":27,"featured_media":11511,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"footnotes":""},"categories":[130],"tags":[126,127,128,79,125,122,123],"class_list":["post-20039","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-loan-management","tag-agency","tag-collection","tag-debt","tag-loan","tag-modern","tag-technology","tag-traditional"],"yoast_head":"\n
\nThis is monitored by both the creditor and the rating agencies to track how prompt a debtor is in repaying the loan. This is used to calculate the credit score of a debtor for future loans.[\/vc_column_text][vc_column_text]Generally, the method to collect a loan follows the steps given below:<\/p>\n\n
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\nAfter this, the bank usually hands over the responsibility of collecting the debt to either the First-Party Agency or a Third-Party Agency.[\/vc_column_text][vc_column_text]<\/p>\nFirst – Party Collection Agency:<\/h4>\n
Third – Party Collection Agency:<\/h4>\n
\nIf the third-party agency is successful in recovering all or part of the debt, they will earn a commission from the creditor, usually a fee, or a percentage of the total amount owed. They are separate companies contracted by the creditors to collect debts on their behalf for a fee.[\/vc_column_text][vc_custom_heading source=”” text=”Problems in Traditional Collection Process” link=”” font_container=”tag:h3|font_size:30px|text_align:left” use_theme_fonts=”yes” google_fonts=”font_family:Open%20Sans%3A300%2C300italic%2Cregular%2Citalic%2C600%2C600italic%2C700%2C700italic%2C800%2C800italic|font_style:300%20light%20regular%3A300%3Anormal” el_class=”” css=”” icon=”” icon_size=”” subtitle=””][vc_column_text]<\/p>\n\n
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Issues faced by NBFCs and MFIs <\/b><\/h3>\n
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\nThe modern collection process<\/a><\/span> follows several guidelines that aimed at streamlining the operations and offer benefits to both collectors and their debtors. Augmenting the robustness of the internet networks and a centralized financial system, the following aspects of the modern <\/span>collection management software go a long way in the ease of business:<\/span>[\/vc_column_text][vc_empty_space height=”3px”][vc_row_inner][vc_column_inner][vc_empty_space height=”10px”][vc_column_text]<\/p>\n\n
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How can technology redefines the traditional process<\/b><\/h3>\n
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Conclusion:<\/b><\/h3>\n
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