Debtor Profiling with a Behavioral Scoring Model

In the realm of financial management, understanding debtor behavior is paramount to ensuring healthy cash flows and minimizing risks. Debtor profiling, the process of analyzing and categorizing debtors based on various characteristics, plays a crucial role in this endeavor. Traditionally, debtor profiling has relied on basic demographic and financial data to assess risk and predict repayment patterns. However, with the advent of behavioral scoring models, behavioral credit scoring - a more nuanced and predictive approach - is now possible.

Understanding debtor profiling

Debtor profiling involves the systematic analysis of debtor data to categorize individuals or entities based on factors such as credit history, income, and payment behavior. Debtor profiling shares similarities with credit profiling, but its primary focus is on recovering already lent money rather than evaluating the suitability of lending to individuals. 

This process is vital for financial institutions as it helps them assess the likelihood of debtors fulfilling their obligations and informs decision-making processes surrounding things like credit extensions and debt recovery strategies. 

An introduction to behavioral scoring models

Until recently, traditional methods of debtor profiling have typically relied on static data points such as credit scores and income levels, providing a limited understanding of debtor behavior. However, behavioral scoring models represent a paradigm shift in debtor profiling because they incorporate dynamic behavioral data into the analysis. Unlike traditional models that rely solely on static information, behavioral scoring models are better at changing over time, and can therefore more accurately reflect how a debtor is likely to respond in the moment. 

Introduction to receeve’s behavioral scoring model

receeve - a leading debt collections platform - provides a key example of a behavioral scoring model in debt management. The upcoming addition to our system will feature a behavioral scoring tool to provide collections teams and agencies with invaluable insights into debtor behavior.

The components of a receeve debtor profile constructed with the behavioral scoring tool

At the core of our behavioral scoring tool are two key components: the 'Probability of Repayment' score and the 'Probability of Self Service' score. Let’s take a closer look at each of those scores now:

"Probability of repayment" score

The 'Probability of Repayment' score evaluates the likelihood of a debtor fulfilling their repayment obligations and avoiding defaulting on a debt, based on a range of relevant factors. The score considers various factors such as the debtor's payment history, credit utilization, employment status, and outstanding debt amount. For example, a debtor who has consistently made on-time payments in the past and has a low debt-to-income ratio might 

receive a high probability of repayment score.

"Probability of self-service" score

The 'Probability of self-service' score assesses the debtor's propensity to engage with self-service debt management tools and resources and take action to pay down their debt on their initiative. This score might take into account the debtor's previous interactions with self-service platforms, such as logging into an online account to check their balance or initiating a payment without assistance. A debtor who frequently uses self-service tools to manage their debt and takes proactive steps to resolve outstanding balances may receive a high probability of a self-service score.

Benefits of using a behavioral scoring model in debtor profiling

The adoption of behavioral scoring models offers a myriad of benefits for financial institutions, debtors, and creditors alike.

More informed decision-making and strategy development

By incorporating behavioral data into the analysis, these models enable more accurate risk assessments, leading to better-informed decision-making processes and more effective debt management strategies.

A more personalized approach to collections for the debtor

For debtors, behavioral scoring models facilitate a more personalized and streamlined debt repayment experience.

Improved recovery rates and lowered DSO

The better you align your interactions with customers' preferences through tailored collections tactics or approaches, the higher the likelihood they'll make payments promptly and more frequently. This leads to improved recovery rates and reduced Days Sales Outstanding (DSO).

Learning more about receeve

Our website hosts a range of valuable resources aimed at providing insights into our debt collection platform and its capacity to enhance the efficiency of your debt collection operations. Under the 'platform' section of the menu, you'll discover dedicated information pages for each major feature of receeve. Furthermore, we have curated pages tailored to various industries that receeve supports, ranging from collections agencies to alternative lenders and entities using a ‘buy now, pay later’ model.

For even more informative content, don’t forget to check out the other posts in our insights hub - or to learn more about life at receeve, take a look at the four pages under the company section of the menu.

To learn more about how receeve's behavioral scoring model can benefit your debt management strategies, book a call with us.