A third-party debt Collection agency is hired by BFSI organizations to collect money from customers. Regardless, if they have a collection department of their own, a BFSI company's cash flow may become paralyzed by an ineffective collection system.

Businesses in the BFSI sector, such as banks, NBFCs, insurance firms, and credit card businesses, can make money by contracting out their debt collection activity to a third party. It increases efficiency while also lowering the cost of collecting.

What is a Debt Collection Agency?

A specialized business called a debt collection agency obtains the banks' list of payees and handles the collecting operation on their behalf. These agencies employ well-tested collection practices.

For the benefit of the BFSI Company, the Agency's main responsibility is to recover accounts receivable. Actual debtors are visited, called, and reminded to make the required payments by the Agency's staff.

To collect the debt, agencies employ every communication channel at their disposal, including calls, SMS, WhatsApp, emails, letters, and personal visits. In the event that a borrower is not adequately responding, they may get in touch with them or their guarantors.

In general, Agencies don't take the money themselves and retain it. They assist the borrowers in making payments straight to the original BFSI company's account.

Note: Debt collection agencies work on behalf of banks and BFSI firms; as a result, numerous governmental regulatory constraints also apply to them.

Debt collection is different from Debt Buying.

On behalf of the original creditors, which are the BFSI corporations who provided the loan, collection agencies only collect or recover the debt from the borrowers. Debt purchasers, however, are distinct from these organizations. Debt buyers turn into creditors once they purchase the debt.

Debt buyers typically purchase a specific quantity of debt at a reduced cost before beginning the collection procedure. The primary distinction is that debt purchasers are the actual creditors and do not collect on behalf of anyone.

Before purchasing a debt, debt buyers conduct a thorough market analysis. Based on that research report, they evaluate their ability to collect the debt within the anticipated time frame in order to maintain profitability.

Note: The debt collection process is particularly complicated due to the sensitive data from BFSI organizations involved and the short time frame. There is no room for inefficiency at all.

Debt Collection Techniques & Process

Third-party debt collection agencies in the USA are paid as a percentage of the total amount of debt that they successfully collect. The commission is higher the bigger the proportion of collecting. Therefore, the collection agency must be very effective in order to continue to be lucrative.

Agencies receive extremely little commission, and the amount of time they have to collect it is likewise quite labored. They won't make any money if they don't get the money (or EMI) when it's due. The most important factor is operational efficiency, which cannot be achieved without the right procedures and techniques.

Collection Data received from BFSI.

This is when the entire procedure begins. The information on the borrowers from whom the money is due for a certain period will be provided by banks (or any BFSI company).

On the basis of their monthly closing date, banks typically provide data each month. Numerous details on the borrower, the amount owed, and their payment history are included in these statistics.

Agencies are able to collect money from debtors because of this data.

Assigning Calls and Tele-calling

The collection agents at the Agency—typically telemarketers—are given data to gather. Depending on the setup and requirements, the software can either automate or manually complete the assignment.

These telemarketers call the borrower's registered phone numbers. In most cases, a call is the initial attempt to collect the money.

Field Force for Actual Collection

However, some borrowers refuse to pay the required amount after receiving a telephone reminder. The Agency then dispatches a member of its field staff to the borrower's registered address.

They may also contact the borrower's guarantors if they discover that the borrower is not answering or fleeing.

Reporting and Analysis

Lastly, the Agency must deliver reports to the Bank for analysis. The monies collected, PTP (Promise to Pay), calls made, visits done, etc., are all included in this report.

Typically, banks require reports in a certain format. The program is used to produce these reports.

Why BFSI Companies outsource work to a Third-Party Debt Collection Agency?

Original creditors in the BFSI industry typically contract out the task to collection companies in order to recover the debt. They find this useful for a number of reasons that are described below.

Operational Efficiency

When it comes to collecting money, agencies are significantly more effective than banks.

There are numerous factors, including improved collection and recovery experience, exposure, technology use, the presence of more entrepreneurial potential, and expertise gained from working for various BFSI organizations.

Low Cost.

● People can be hired by agencies for significantly less money. A reputable BFSI will never be able to hire staff for such low pay.

● The company's HR policy and legal framework forbid it.

No Employee Liabilities.

Companies are prohibited from hiring and discharging employees due to legal restrictions and company HR regulations, whereas agencies can do this with ease.

Easily Scalable

● The fact that agencies typically operate for numerous BFSI organizations provides for extremely effective load balancing.

● The Debt Collection Agency can simply change the load in the event that a BFSI client needs to deploy extra agents.

Incentivise performance and penalize inefficiency

● Efficiency serves as the foundation for Collection Agency's revenue model. The more money collected, the more money the Agency makes.

● The BFSI firms can easily reprimand and reward the agents based on their performance.

No need to manage people.

Collection agencies are effectively handled since they operate in smaller teams.

Maintain Market Share

● BFSI organizations must outsource the functions and retain the IPR if they hope to expand quickly and maintain their market dominance.

● The two tasks that are outsourced the most frequently are lead management and debt collection.

The Bottom Line

The debt collection industry is vast. If you own a business and are lagging behind past dues from customers, hiring a third-party debt collection agency can help you collect debt seamlessly.