BOSTON — Success requires good vendor management, but credit unions can gain revenue by outsourcing collections, said Marney MacFadyen, vice president of sales at Credit Control, a St. Louis-area firm that provides the service.
MacFadyen shared the risks and rewards of the practice with attendees at NAFCU’s Annual Convention on Wednesday at the Hynes Convention Center in Boston.
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Benefits of outsourcing past due loans include reduced overhead, compliance and technology costs, new revenue streams, and in contingency agreements, costs based only upon results.
“You can also redeploy internal resources to a more customer facing role, as opposed to having them in collections,” MacFadyen said.
Risks include reputational risks that come from allowing employees outside the credit union work with members, she said, and the potential for data breaches.
Consolidation within the collections industry, due to falling delinquency rates, makes choosing a financial stable vendor critical. MacFadyen said credit unions must also stick with firms that specifically work with financial institutions, rather than firms that work in other industries, such as those that collect medical debt.
And, even within the financial institution market, credit unions should seek out firms with experience working with credit unions, because “even credit union debt is different than bank debt.”
MacFadyen, who said she worked as a credit manager and managed relationships with collections vendors, said communicating performance and service expectations is often an overlooked best practices component of the strategy.
“If your service model is that if a member calls you, you will call back within two hours,” she said. “And, you may expect that of your vendors, but if you don’t communicate that to them, they may not respond.”
She even suggested credit unions conduct performance reviews for collections vendors, much as they would do for their own employees.
Volume is also important to a successful vendor relationship. Credit unions that hire collections vendors to handle 1,000 accounts a month must deliver that volume, because vendors not only based pricing upon the number, they also dedicate employees to the workflow.
“In reality, if you’re only placing 100 accounts a month, the vendor can’t be profitable,” she said. “Then, you’ll have a performance issue because you’re wondering why they can’t work your accounts more effectively, and at the same time, the vendor is looking for more volume because they’ve set up a strategy for that.”
Credit unions should also grill potential vendors to ensure they comply with all regulations and are licensed in all states where members reside. And, the firm must have strong financial controls.
“You want to make sure your money collected on your behalf isn’t comingled with the company’s money,” she said.