At the end of 2020, American Bankers Association (ABA) reported an increase in consumer credit delinquencies for the first time in two quarters. Home equity and mobile home loans saw the largest increase. Loan delinquencies are on the rise.
So, how can you prevent loan delinquency? Today on the blog we’ll explore a few ways you can keep your customers in good standing with special attention paid to communication and a proactive digital outreach approach.
The best way to manage delinquent accounts is to stop them from happening in the first place. Opening up communication with your customers helps with just that. You might be surprised how far a simple reminder over email or SMS can go to help in preventing delinquency.
To understand delinquency and start a conversation about how to prevent it, try answering why your customers might miss a payment? Usually it is one of two reasons:
- They don’t have the money to make the payment.
- They have the money available but don’t follow through with the payment.
Proactive digital communication with your customers can help in both cases because it gets reminders in front of them faster. Let’s dive in.
Proactive communication is preventative
When we talk about communication and loan delinquency, you are prompted to think of following up once a loan has become delinquent. This type of communication is reactive.
Proactive communication is interacting with your customers in a way that helps you stay ahead of delinquency. It looks like reminders, clear invoicing, and even working with customers to reshape terms.
To be proactive, be organized
A proactive strategy means making sure contact information is up to date and comprehensive in the case that you need to contact your customer or locate assets. You can reach out to your customers periodically to confirm their contact details.
Make sure there is no confusion about the amount your customer owes to their account. A well-designed account dashboard or regular statement reminders can help motivate your customers to pay on time. Make sure the invoices you send your customers are easy to read.
Three pieces that your customers need to notice at a glance as soon as they open their online account or written account statement:
- Who the invoice is from
- The amount owed at this time
- When payment is due
Make deadlines and payment totals stand out by putting them in bold type and spacing them apart from the rest of the information in your invoice. You can make sure your customers understand who the invoice is from by putting your organization’s name at the top left in slightly larger font. Be sure to list methods of payment accepted directly under the amount that is owed.
COVID-19 brought a lot of uncertainty to everyone’s lives. Reach out to your customers that have been flagged for potential delinquency and work out terms that better suit them. In doing so you might be able to continue to receive payment on an account instead of going into delinquency.
Automate alerts for at-risk accounts
Gain insight into the trajectory of your member’s financial health by evaluating and monitoring credit data. This kind of information is a good predictor of financial behavior in the near term. It gives you insight to draw correlations between changes in credit health and actual delinquencies.
Another indicator of possible delinquency is current standing with other loans or creditors. When a member becomes delinquent on one account other accounts are at risk.
This data helps you to determine appropriate prioritization and treatment strategies. You can set up automated alerts for at risk accounts that let you know when it is time to start taking action to prevent delinquency.
Keeping an open line of communication with your customers is essential for maintaining your relationship with them. Delinquent accounts hurt you and your customers. Stay ahead of the curve by employing a proactive communication strategy that includes digital outreach and reliable reminders.