Bolster Your Credit Card Debt Collection Results Using These Three Strategies by David Montana
in Finance / Banking (submitted 2010-12-20)
If you're in the business of of issuing credit cards, an amount of financial risk is assumed, in that some customers, if not careful, can take on large amounts of credit card balances. It is also to be expected that there will be instances when some of those customers will default on their credit card responsibilities. As a lending institution, you need in place systems to address and collect this debt owed to you. If not, then your business can suffer great financial losses. It is just that simple.
There will be instances when the customers you've granted credit card privileges will not pay back the debt they owe. When this happens, it becomes necessary to use a system of credit card debt collection.
For sure, most people act responsibly, and they generally do not default on their credit card obligations. In some instances, there are extenuating circumstances, such as sudden unemployment, medical expenses from an illness, or other circumstances that lead to the problem.
However, the credit card issuer must engage in some form of debt collection regardless of the individuals circumstances. This is because the issuer will need the revenues to maintain the health of the business as well as the proper relationship with those that do pay their debts.
This latter point requires further clarification. When a credit card customer doesn't pay their debts, this money must be generated from another source. In some cases, it can lead to the institution raising the interest rates on the other card holders. While this can reap short term results to the problem, it can also lead to making your good customers unhappy. They could end up going with another credit card issuer. This will have a longer term negative effect on your business. This is why it is critical to use proper credit card debt collection practices.
As the name suggests, credit card debt collection involves the proper collection of past due monies owed in an effective manner that follows the letter of the law. While debt collection can be difficult, if your institution follows a few commonly established tools for success, you can greatly improve your ability to collect the money owed to you. Here are 3 common tips to enhance your success:
1. The first step in proper collections is to send a letter to the past due customer. This letter should clearly explain the situation, as well as state the exact amount that is overdue. It should request prompt full payment, while also informing the customer that they may present any information that disputes the accuracy of the statements contained in the letter. Generally, these demand letters will provide a 30-day time period for a response, as the law requires. Also, this is usually an adequate period of time for such a response.
2. If payment has not been made after this period, you should contact the customer by telephone within the 31-60 day time period. This call should ask for clarification as to why the debt is not satisfied. Then center on, and offer a repayment plan. If success hasn't been achieved during this period, the next time period, 61-90 days, should focus on sterner phone calls and letters informing the delinquent customer of the potential damage to their credit rating should the default continue.
3. If this does not solve the problem, the next step should involve hiring a professional credit card debt collection agency. Such agencies are well adapt at dealing with delinquent accounts and can take such responsibilities off the shoulders of your business. This will allow your business to allocate its resources to other areas besides the perpetual collection of delinquent accounts. Credit card debt collection is not always easy. Some account holders simply cannot or will not pay. However, if you take the proper steps to deal with the problem, you may discover these problems resolved in a more efficient manner than you thought possible.
It's very important to mention that time is a crucial factor here. The earlier you can identify problem accounts, and outsource them at a reduced cost and time savings to those with better experience at handling them, the more money you will recoup sooner, and the more time and money you will save in the long run. The longer an account goes delinquent, the likelihood of recovering any money is reduced greatly.
