MICROENTERPRISE ACCESS TO BANKING SERVICES

TRAINING MODULE FOR COLLECTORS

OBJECTIVE OF THE TRAINING

1. To provide collectors new techniques in conducting their collection activities.

2. To enhance/polish existing skills presently used by collectors.

3. To apply acquired new skills and techniques to increase the collection of past due accounts and reduce PAR.

COLLECTION PROCESS

WHAT IS THE OBJECTIVE OF COLLECTION?

1. To obtain payment of accounts promptly at minimum cost while maintaining goodwill with borrowers

to collect promptlyat minimum costand maintain goodwill

2. To encourage delinquent borrowers to become more responsible credit users, and repay on time

3. To extend assistance to borrowers who through unexpected expenses or temporary loss of income, or a combination of both, find it difficult to keep current on their loan payment. - financial advice- technical know-how- restructuring of accounts

4. Assist in correcting errors in credit decisions such that potential and actual losses are reduced to a minimum.

provide information/insight

WHAT DO PROBLEM ACCOUNTS REQUIRE?

1. Immediate and proper identification of problem

type cause magnitude

2. Proper corrective measures or remedial management

HOW TO MANAGE PROBLEM ACCOUNT

The worst reaction we can have when confronted with a problem account is to push the “Panic Button”. We must approach the problem with two things in mind.

FIRST WAY OUT- What are the primary sources of repayment?

1. Cash generated by sales of borrowers’ inventory

2. Cash generated by cash from borrowers’ receivables

SECOND WAY OUT- What are the other sources of funds for the loan balance?

1. co-maker2. deposits maintained with the bank3. real estate/chattel mortgage4. merchandise inventory5. business furniture and equipment6. other personal leviable assets

WHY PROMPT COLLECTION EFFORTS?

1. Laxity in collection may lead to more difficulties in collection and weaken the bank’s image as a “serious” lender, which may influence other borrower’s repayment decisions (i.e. increase delinquency)

2. The longer the receivable remains outstanding, the longer the bank is continually exposed to hazards and risk of non-payment or loss.

3. Prompt collection tends to reduce the investment required in receivables and capital cost.

STEPS TO BE TAKEN IN COLLECTING FROM DELINQUENT BORROWER

1. Maintain a regular, continuous follow-up.2. Keep in constant touch with the borrower.3. Try to be cooperative and helpful.4. Be assertive but courteous.5. Exercise compassion and understanding as

circumstances would indicate.6. Use all available resources to enforce

collection.

To implement these steps, the bank must enlist qualified personnel to handle the specific function of “Collection”. Major factors being considered are:

1. educational background2. specific character traits and skill

sets

MAJOR QUALITIES OF A GOOD COLLECTOR

INTEGRITY

Collector is upright and has an unquestionable character. Displays a high degree of honesty

INDUSTRY

Collector is active, positive and confident in executing his tasks. Collector takes initiative

PERSISTENCEA good collector does not tire or fear making repeat calls until the amount owed by the borrower is collected. Collector is always prompt in action and thorough.

TACTDisplays courtesy in collection. Shows grace under pressure. To succeed one must as much as possible avoid offending the delinquent borrower while making the collection for the bank. Tact is best defined as prudence and good judgment.

RESOURCEFULNESS

They are individuals who possess a strong common sense. They are capable of devising ways and means by which they could enforce payment. They know the art of proper timing - when is the appropriate time to collect.

CLASSIFICATION OF DELINQUENT BORROWERS

Banks classify delinquent borrowers into categories to:

1. provide and establish a sound collection policy.

2. implement an effective collection procedure

1. BORROWER WHO FORGOT TO PAY

This is the easiest type of borrower from which to extract payment. They are good borrowers who due to hectic schedules or unforeseen circumstances unintentionally miss payment on their loan amortization.

2. BORROWER WHO IS NOT ABLE TO PAY

The majority of these borrowers have the means of paying their loan but become delinquent due to events beyond their control, resulting to the temporary strains on the family budget. This type of borrower typically repays as soon as they are capable.

3. BORROWER WHO IS NOT WILLING TO PAY

This type of borrower normally has the means or has the capability to repay the loan but finds it hard to part with money. Generally they are borrowers who:

1. are able to pay but unwilling at the moment

2. are able to pay but unwilling to pay

BORROWER WHO IS NOT WILLING TO PAY

May exhibit the following characteristics:

“POLITICIAN TYPE” This type of borrower does not deny the

existence of their debt or shun away from the presence of collectors. This borrower has many reasons for not paying and always asks for postponement in repaying. They make the collector feel welcome at their home and may treat them to coffee or merienda. Most often, the collector returns empty handed because they are distracted by this action.

“HABITUAL COMPLAINER”This type of borrower has always certain

grievance or complaints, fabricated or otherwise every time collector visits him. In some instances they are designed as smoke screen for his failure to meet his obligation on time. Complaints may range from poor service, usurious interest rates and exorbitant penalty charges.

“FINGER POINTER”This type of borrower usually points to

other borrowers to collect from. They feel that they will only pay their loan if other borrowers pay before them. A typical response is “ I know you must have others who owe a lot more than I do. So why pick on me?”

“ELUSIVE TYPE”

This kind of debtor is elusive. They may maintain two doors, one to gain entry and the other to exit without detection. They typically leave their house early and return late at night. They may instruct employees or members of their family to provide alibis for collectors.

“HOSTILE TYPE”

This borrower normally shows a belligerent attitude towards collector. They may be arrogant and be belligerent or critical of the bank. They may engage in arguments or a fist fight, a mentality and behavior reminiscent of the days of the old frontier wherein might is right. They are annoyed at the presence of a collector and may try to intimidate the collector who they regard as an intruder.

“For a collector to be effective and successful with assigned task he must strategize and formulate action plans in enforcing payments on these borrowers. He must develop techniques to approach a certain type of borrower, how to handle problem borrower and the most important is- how to obtain prompt payment from them.”

ACTION/ APPROACH IN COLLECTION

BORROWER WHO FORGOT TO PAY

1. Frequent visitation/constant follow-up

immediate visitation upon missed amortization

Before visitation double check records show courtesy and tact if borrower fails to pay set date at earliest

time for next visit make borrower feel that you are doing him

a favor by picking up his payments. refrain from collecting early/late at night

2. Explain advantage of early payment

repeat loan avoidance of penalty/surcharge

3. Flexibility as to time/manner of collection.

BORROWER WHO IS NOT ABLE TO PAY

1. Frequent visitation/constant reminder assess present condition of

borrower/collectibility of future amortizations

2. Explain advantage of early payment3. Develop good sense of timing. When is the

proper time to collect? Must be familiar with “cash cycle” of borrower.

4. Flexibility as to time/manner of collection.5. Develop close rapport. This would come

handy in case of multiple creditors.6. Appeal to the wife. Normally wives makes

the family budget and pay the bills, moreover they’re more concerned in protecting the family reputation.

7. Inform co-maker. Enlist his help in convincing borrower.

8. Seek help of father/mother financial help/assistance convincing borrower to settle loan

9. Implement security agreement/chattel mortgage. Request for additional collaterals if present ones are inadequate. Be sure that borrower is absolute owner and properties are not subject to lien.

10. Restructure the loan.11. Explain to borrower/spouse the risk of court

case.

BORROWER WHO IS NOT WILLING TO PAY

ABLE TO PAY BUT UNWILLING AT THE MOMENT

Borrowers who are characterized as: politician type habitual complainer finger pointer elusive type

1. Frequent visit/constant reminder more persistent and more frequent visits to

house or business location familiarity with other assets of borrower in

case bank pursues court action.2. Explain advantage of early payment.3. Flexibility as to time/manner of collection.4. Appeal to the borrower’s spouse.5. Inform co-maker. Enlist his help in convincing

the borrower.6. Seek the help of relatives and immediate

household members to settle loan.

7. For borrowers imployed in government, make a personal or letter of appeal addressed to respective offices.

8. Implement security agreement/chattel mortgage. Request for additional collaterals.

9. Explain to the borrower/spouse the risk of court case. Emphasize cost of suit and damaged family reputation.

10. Have the legal department sent a demand letter threatening court action.

11. File case in barangay court,MTC/or RTC.

ABLE TO PAY BUT UNWILLING TO PAY

Characterized by: hostile type

1. During visitation collector must be: courteous and tactful. show confidence, maintain

composure and calmness during course of conversation.

must not allow emotions to control decisions and actions.

Avoid direct confrontation and immediately leave the place if borrower starts to show belligerent attitude.

2. Appeal to the borrower’s spouse.3. Inform co-maker. Enlist his help in convincing

the borrower.4. Seek the help of family members and relatives

top settle the loan. Inform them of borrower’s belligerent attitude towards collector/bank.

5. In some instances wherein borrower’s spouse shows belligerent attitude, immediately leave the area; avoid confrontational attitude.

6. For borrowers employed in government make a personal/ letter of appeal to respective offices.

6. Collector may seek the help of barangay officials in enforcing security agreement. Also enlist the help of the spouse in its implementation. Request for additional collaterals.

7. Explain to spouse the risk of court case. Emphasize the cost of suit and damaged family reputation.

8. Acquire information on other assets borrower owns in case the bank decides to pursue court action.

9. File a collection case with the local court.

The collector may now choose what action /collection technique(s) he may use in enforcing collection from those delinquent borrowers. Furthermore he may reclassify borrowers based on that classification during the course of his collection and apply necessary action(s) accordingly.