First Payment Defaulters - Part 2

In the previous tip, we reviewed best practices for managing first payment defaulters, (FPD’s), in developing markets. In this tip, we will consider practical methods for working FPD’s in more developed markets.

As FPD’s represent customers who have failed to make their very first payment, they carry considerable risk. In developed markets, with well-established postal services, it is reasonable to expect that customers received their account statements well in time for payment to be made. FPD’s therefore typically indicates lack of willingness to pay. The following tips have been useful in managing early stage FPD’s in developed markets:

• Accelerate treatment
  It is best practice to queue first payment defaulters immediately. Accounts should be assigned to a collections work queue to enable immediate and specific treatment. Collector talk-off should be focused on obtaining a PTP for immediate payment. With a few exceptions, the overwhelming majority of FPD customers are high risk with a high likelihood of subsequent ageing. FPD’s therefore represent the highest priority delinquent accounts in one cycle.

  At two cycles, much harsher actions should be taken, possibly with accelerating the account to a collections agency. Due to initial harsh actions having been taken, collectors have limited leverage available to elicit payment.

• Manage pre-notification cases
  Some customers may contact the inbound call centre prior to becoming delinquent, providing notification of their inability to pay the account. In such circumstances, the customer’s willingness to pay should be recorded to preclude harsh actions when the account enters collections. The main consideration here is that accounts can be passed to a collections system, having not yet become delinquent.
• Update of contact details
  Operational processes must ensure the timely update of address and telephone number changes. Equally important, returned mail instances must immediately be processed and up-to-date contact details obtained. In regions where credit bureaux offer trace services, these have proven effective in obtaining updated contactability information, specifically from recent credit applications.

Stephen J. Leonard is Managing Director of PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 15 years of risk management experience in the banking and consulting industries at Chase Manhattan Bank and Fair Isaac International. He holds an AS (State University of New York), BA (University of Toronto), MBA (Adelphi University – School of Banking, New York) and is a member of the UK and South African Institutes of Credit Management.