In this article, we look into the inner workings of agencies for debt recovery in the framework of the financial market.
Introduction
Money lending is one of the oldest professions in the world. It is also one of the safest returns on investment because the law guarantees returns. Naturally, over time, they have become sophisticated due to the ever-changing scale of markets and economics. Technological advances mean a person doesn’t need to go to a money lender or bank to take a loan. You must fill in a few online forms and provide a few IDs to get a credit card. Banks prior to the 1990s were all public sector banks. All belonged to the government and, by default, were all not-for-profit organisations. So there was no real motivation to increase the number of loans or compete for profits with other banks. Banks were purely practical. However, post globalisation and the arrival of private banks, getting a loan or credit is a different game. Instead of you asking the bank for a loan, the bank calls you up and makes tempting offers to avail of loans. Most of the products that are bought online are bought on credit cards. Most of the holidays people take abroad are financed by a credit facility. To widen the range of people banks could sell their credit products, the banks began lowering their eligibility criteria, giving away loans or credit cards without performing the proper checks to assess creditworthiness. This began to result in defaults and abscondment. Some companies saw this as an opportunity for business, and with that came about Debt Recovery Agencies, allowing banks to control the damage caused by defaults without scaling down their business. Let us take a look at how these Working Process Of Debt Recovery Agencies.
How Do These Agencies Work
agencies for debt recovery are agencies with a large workforce, allowing them to process large volumes of data. The agency’s objective is to make as many collections as possible within a particular period.
And a percentage of their collections are paid to them as commission. Different collection houses have internal processes and techniques for making collections from defaulters. But there is an overall pattern that all of them follow. This pattern can be considered a general operating procedure for any agencies for debt recovery . Let’s take a look.
Bank Engages With The Agency
The first step is for a bank to approach the agency with the intent of hiring them for their debt collection drive. It is also possible that the agency approaches a bank with a proposal to take over its debt collection efforts.
The bank then shares data with the agencies for debt recovery . This contains the details of the defaulters, the amount due, the delay period and the contact details of the defaulter.
Processing Data Through Resource Pool
The agency then allocates the data amongst its human resource pool. The assignees then make calls and send emails or text messages informing the debtor of the default and the consequences, requesting them to pay the money at the earliest.
Field Visit
These agencies for debt recovery have a separate department with on-field employees who physically visit those debtors who have not been reachable via phone or email after multiple attempts. They visit the address provided by the debtor in the loan or credit card application, along with facilities to enable payment in case the debtor is ready to pay the amount immediately.
Analysis Of Collection
The agencies for debt recovery then prepares an analysis with various metrics on the collections assigned against the collections made. The analysis can also be done from various demographics such as age, occupation, location etc. This helps the bank in formulating or modifying its lending policy.
Benefits Of Hiring Such An Agency
- No Need for Payroll Formalities: The lender doesn’t need to make new entries in its payroll ledgers. Making an entry into a payroll ledger has multiple consequences. Health benefits must be offered to the employee, along with retirement benefits such as PF, ESI, etc. Plus, the bank will need more infrastructure to house the employees and hire/purchase more equipment such as computers, telephones, motor vehicles, etc. All of this is avoided by engaging an agency.
- No Need for People Management: The agencies for debt recovery does not have to go through the process of managing individual employees. Managing individual employees would involve setting targets, monitoring progress, conducting performance reviews, providing incentives etc. All this is the problem of the debt collection agency.
- Lesser Cost: The bank usually has a standard for basic pay for employees. This is because the kind of salary a bank pays its employees affects the bank’s brand image and how it treats its staff. A debt collection agency does not have to bother about public perception since it functions on a B2B model and can afford to pay lower wages to the employees. This means a lump sum commission to an agency will work out cheaper for the bank than hiring the employees in-house.
- Scalability: agencies for debt recovery usually have multiple clients. They never commit their entire manpower to one particular lender client. So, in case of an emergency, if a bank suddenly needs to scale up its collection drive, the agency does have the capacity to support this scale-up by adjusting the allocation between different clients for the emergency period.
Conclusion
The structure and the ecosystem of the financial markets can be very complex sometimes, and its dynamics may seem strange to a person from the outside And debt recovery agency in india.
However, almost everyone needs to engage with this market in one form or another for some purpose, be it a loan or a credit card. That is why there are experts who study these markets to advise people who are planning on engaging in the services of these markets. If you have any doubts or queries or wish to seek any advice regarding debts or any other matters of the financial market, get in touch with Vakilsearch today. We will connect you to our financial advisory team, who will assist you with your requirements.
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