Solutions in Finance is a consulting firm based in Los Gatos, Calif., that provides services to financial institutions in business lending, consumer lending, indirect lending, mortgage lending and collection operations. Garcia said business has picked up for him in this economy, with existing clients asking him to come back to reassess their operations and new clients coming in weekly.
Many credit unions, Garcia said, have their collections departments running in an old-fashioned manner. These credit unions have one collector that divides up the accounts among each collector evenly by alphabet and that collector is responsible for the account through the whole process.
Garcia called this the "birth to the grave" process and one of the biggest mistakes that credit unions make.
"Credit unions have rolled along for many years with low delinquency rates, and now their collections departments are exposed. The way a lot of them have been operating really doesn't work in this economic environment."
To help financial institutions that are finding their collections departments are overwhelmed and inefficient right now, Garcia created a Top 10 collections check-up list.
1. Is your collection department structured properly?
2. What collections' strategies are you using?
3. Are you utilizing technology properly?
4. Are process efficiencies in place?
5. Is the department performing at a high level for maximum results?
6. How do you measure performance?
7. Are your staffed properly?
8. Do you have the proper expertise and skill-set levels on staff?
9. Are your repossessed vehicle sale results up to industry standards?
10. Are you maximizing charge-off recoveries?
Some credit unions have been scaling back by closing branches and downsizing employees to cope with the economy, but scaling back in the collections department right now is a serious mistake, Garcia said.
"It's a no brainer when it comes to understaffed departments. You need to staff it up. When you think about it, collections department employees pay for themselves."
At the same time, Garcia said, you don't want to overstaff and waste of resources.
One of the things Garcia is seeing in a lot of the credit unions he goes into is that they are not as aggressive as they should be. Most, he said, start contacting members when the account is 15 days past due, but he usually recommends making contact sooner than that.
When it comes to technology many credit unions are behind the times, using collection ledger cards and Microsoft Outlook to keep track of when they make contact with members.
"That's a very inefficient way to keep track and to follow up. You'd be surprised how many credit unions don't have a collections department working as efficiently as it should."
For big billion-dollar credit unions, Garcia said it is extremely important to operate efficiently. For smaller credit unions, it is more difficult to do so as the teller may be working as a collector, too.
For small credit unions, Garcia recommended looking at outsourcing, but cautioned that you can't outsource the whole collections process.