Management of bank receivables…

1. Basic principles of the banking service

The common interest of both sides, banks and the client, is to achieve an agreement in mutual benefit. After receiving a loan placement, the loan beneficiary is satisfied with the fact that he/she was provided funds for the satisfaction of their personal needs, while the bank on the other hand has received a new customer/ has widened its offer according to the existing client and has placed another product into the market. At this point, the mutual satisfaction of the contracting parties does not indicate in any way that things can go “wrong”, nor that the placement may be declared a NPL, ie. a problematic receivable.

The reasons for the debtor’s delay may be different, from changing personal circumstances on clients side, which lead to the impossibility of active and timely servicing of their obligations, to the abuse of the services provided by the bank (when we are talking about “professional debtors”). Banks always opt for, in the first few days of the delay, to amicably solve a newly present situation, even making concessions when personal circumstances of the debtors make their material position worse. However, all efforts are sometimes not enough and then, inevitably, the collection of receivables mechanism activates.

Although the collection procedure of receivables that the bank practices with the delaying debtors may seem quite strict, it includes a number of activities, rules and principles of which the bank is adhered to before engaging in the court proceedings. The whole process includes several phases that are arranged between the bank staff itself, but also includes external collaborators for the collection process, collection agencies and law offices.

The goals that a bank may want on a long run can be distinguished depending on the bank itself, but in principle, each bank wants to maximize the possibility of a realisation of an approved credit placement, with the maximum respect of clients’ rights and the legal framework at hand. Maintaining confidence and reputation is very important for the bank itself, and the collection process is always accompanied by quality analysis, research and control of the whole process.

Precisely for these reasons, ie. as a consequence of the minimization of potential risks, banks have a clearly developed structure and special sectors that work on the collection process from the first call, the collection of receivables in court proceedings, and all through the completion of said process. However, as a consequence of the extense of the portfolios themselves, the banks increasingly see the delegation of a portfolio as an adequate way to manage NPLs, ie in the engagement of law offices and professional agencies for the collection of receivables.

2. The „Soft collection“ phase

If the Bank decides that management of problematic receivables will be entrusted to external associates, the main role in the initial – “Soft Collection” phase have the professional receivables collection agencies. The first steps that the agency is taking are connecting the most modern software to crypt files and transfer data from the bank’s data base to the data base of the agency, following all legal regulations on personal data protection. Efficiency and accuracy of data entry in the agency data base is almost 100% reliable and it follows, in the current time, any change that happens at the bank’s data base, which is in relations to the debtor. The application used has data on any action taken according to the specific debtor and provides everyday insight into the success of the process.

After a very rapid formation of portfolio, there is an internal segmentation of the debtors within the agency itself, by different criteria. One of the most important differentiations of the debtors is by their natural or legal entity, and futhermore a secondary differentiation can be made on the basis of the first one. An important classification is made by is it a “Late Collection” or an “Early collection”, ie in which stage of the collection the debtor is in. What the agency addresses special attention to is whether the debtor can be contacted or if no contact information has been confirmed. If the case is that the agency cannot aquire the correct debtor’s data, it will either ask for additional information from the bank, or search for the needed data according to GDPR (General Data Protection Regulation). Based on all conducted analyzes, the agency prepares a strategy, according to a certain group of debtors, so that in the first days of collection process, it has prepared/predicted the needed actions for each phase of the procedure (defined by those lasting several months to those that are done on a day-to-day basis).

The first contact with the debtors, depending on the previously mentioned criteria, can be by telephone, but also through written warnings. Professionally trained operators go through an elaborate procedure of communication to ensure the fulfillment of the debtor’s contractual obligations and payment of due rate, and the application enables effective recording of each action taken, agreements made, as well as the mapping of the next steps needed to be done by agents.

There are situations in which the debtors refuse to meet their obligations or contact simply cannot be made, in which case the bank will decide on their further treatment. In such situations, there comes a termination of contracts and declaration of its maturity, as well as resorting to the process of foreclosure.

3. The „Legal collection“ phase

The separate phase in the collection of receivables is the “Legal Collection” phase whose portfolio consists of clients for which the process of foreclosure is needed, due to the lack of voluntary fulfillment of obligations in the previously determined period. These can be the debtors whose contracts have already been terminated or the debtors whose contracts will be terminated in due time. The Law Office conducting this phase of the collection receives the portfolios of the debtors from the bank, said portfolios need to be grouped by different criteria, and on the basis of that selection a certain strategy needs to be made for the realisation of the collection of receivables. At the beginning of the realization of this phase of the collection, the quality of performed analyzes (so called “input” analyzes) is of great importance,, based on which the time framework for the implementation of collection will be made, but also the cost framework of the proceedings, as well as detecting all potential risks.

There are three facts that are managed by lawyers in determining the overall strategy for the process: the legal basis for collecting, their security in terms of being collectable , ie. collaterals being the most secure asset assurance, as well as time frame and collection costs.

Depending on the bank’s approach in the manner of treatment of its portfolios, before initiating a certain court proceedings, lawyers can come into contact with the debtor once again and offer a voluntary settlement of the claim. They do it through written warnings, but often the communication continues by telephone and through letters. In certain situations, agreements are concluded by the bank and the debtor, as a compromise solution, all made via law offices. The agreements as a form of an alternative dispute are a significant tool in collection of receivables, at all stages of the proceedings, and it is possible to reach this outcome even after the activation of all court proceedings. This solution significantly reduces the time consumed, but also the cost of the overall procedure and is rather significant to the bank, which will receive its funds faster this way.

The collecting launch strategy is also affected by the type of the debtor / their legal status, and therefore a thorough analysis of the the debtor’s legal and financial position, but also the existence of adequate collateral, will determine whether the litigation procedure must be properly executed to collect claims, or will it be collected through bankruptcy proceedings, executive procedure or some other appropriate procedure. Of course, the efficiency and expertise of the law office is present during the entire procedure, and with complete and ordinarily reports, the bank practically has real time insight into relevant facts related to the cases, at any given moment, and can smoothly monitor the success and efficiency in portfolio management.

During the procedures, there may be different legal situations at hand, predicted or not, but it is important for the bank to collect their claim as soon as possible, which is also the basic postulate of the hired lawyers in collection of receivables. Therefore, when choosing a way of collection of receivables, and especially when they are implementing an execution, lawyers should always choose the means that most efficiently charge the receivables. Therefore, the collection will primarily be executed on the debtor’s accounts, earnings or pension, as the least invasive means of execution, while the execution on real estate will only be implemented if there is no other way of collection and its value is proportional.

Upon completion of the procedures and settlement of claims as the final goal, the law office closes the subject in its internal data base and archives it, which ends the collection process and the “Legal Collection” phase of the procedure.

4. The advantages of entrusting the banking service to external subjects

The process of collecting the problematic receivables can represent a large administrative burden and a waste of money and time for the bank. By entrusting this procedure to collection agencies and law offices, the bank significantly relieves the entirety of its administrative burden and largely increases the efficiency of the process and the success of the collection. The receivables collection agency that meets the “golden standard of business” , ie the one that uses data generation and mapping technology, therefore performs the adequate strategy at each stage of the proceedings, and can, as a result, almost certanly collect the receivables even in the “Soft Collection” phase of the process.

If it is not possible to realize the claims in the initial phase of the procedure, it is critical to engage with a professional and innovative law office that will follow through every request of the client, in the best possible way. Of course, lawyers are trained for quick and quality reactions and maximization of said claims, and so, often as a form of strategy, there can occur a parallel activation of a number of methods of the collection of receivables, either as a type of a quick way of collecting, or as a legally allowed “pressure” on the debtor. It is especially important to “digitize the law”, in a way that the traditional model of the work of lawyers becomes optimized to a model that enables the realization of mass projects without reducing quality. This can best be achieved by simultaneous connection of these two external entities and by their mutual cooperation, followed by a modern software allowing all this to happen.

Modern times and technology development requires changes in the process of collecting problematic receivables as well, and it is necessary to entrust it in agencies and law offices which can answer to modern age challenges and whose work system is developed in a way that it doesn’t compromise the quality. But with the help of technological solutions it becomes easier and less time consuming to achive the best possible results. This way, the bank maximizes and optimizes its resources, and instead of the process of collecting receivables being an internal one, by engaging the agencies and law offices, the bank is able to solve one of the main problems in its business dealings better and faster.