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The Use of Behavioural Scoring in Debt Collection

The Use Of Behavioural Scoring in Debt Collection

In the complex world of debt collections, staying ahead of the technological curve and your competition often requires innovative approaches. One such advancement that’s currently making waves in the industry is the use of behavioural scores to assess debtor profiles and identify the approaches that will work best with them. In this article, the receeve team will dive into the significance of these scores, their impact on debt management, how they enhance debtor profiling, and more!

An introduction to the use of behavioural scores in debt collections

In the context of debt collections, a behavioural score is a numerical representation of a debtor's potential actions and reactions during the debt recovery process. Their significance to the industry lies in their ability to provide a more nuanced understanding of debtor behaviour, and thereby act as a pillar of effective debt management.

The Importance of behavioural scores in debt collections

Behavioural scores are becoming an ever-more important metric for businesses involved with debt collections,  as when applied well they can be used to inform several critical aspects of a successful collections operation, department or company. Here’s how they do it:

Use for risk assessment

Firstly, these scores serve as invaluable tools for risk assessment. By evaluating a debtor's behaviour and financial habits, creditors can gain a more comprehensive (and accurate) understanding of the potential risks involved with any given case.

Use in predicting debtor repayment patterns

The foresight that accurate scores can give is indispensable for creditors seeking to tailor their approaches based on the likelihood of timely repayments. To run a debt collection operation successfully, you need to know whether a debtor is prone to making regular payments or if they require a more hands-on approach - and behavioural scores can provide those insights.

Use for collections strategy development and selection

The impact of behavioural scores extends beyond prediction, though. When provided with the more nuanced understanding of debtor behaviour that the proper use of behaviour scores allows for, creditors can fine-tune their collection strategies to better suit a debtor’s behaviour and preferences. Whether that involves personalised communication, targeted reminders, or something else entirely will depend on the debtor and the assessment of their behaviour of course, but the bottom line is that behavioural scores do empower creditors to adopt strategies that maximise the chances of successful debt recovery.

The benefits of using behavioural scores

When done properly, using behavioural scores in debt collections brings with it a diverse range of advantages for the companies using them. We’ve just seen why these scores are important in the section above, but now let's take a look at some of the more practical benefits that they can deliver: 

Better strategic allocation of resources

Behavioural scores empower creditors to allocate resources strategically. By identifying debtors with a higher probability of repayment or those requiring more personalised attention, creditors can better optimise their efforts and really put their focus where it is needed. This targeted approach ensures that resources are directed to the repayment channels and methods that are most likely to yield positive results, enhancing the overall efficiency of debt collection operations.

Better (and more) insights into customer behaviour

One of the paramount benefits of behavioural scores lies in the depth of the insights they provide into customer behaviour. Beyond traditional credit scores, behavioural scores offer a nuanced understanding of financial habits, payment preferences, and how likely they are to respond to the various communication channels at your disposal. These insights enable creditors to tailor their approach more to the individual debtor - an approach which is certainly more likely to lead to more meaningful and productive interactions with debtors, and make it more likely that the money owed will be recovered.

Integration with other data

Behavioural scores become even more powerful when integrated with the other client or collections data that a modern collections team or business should be collecting. By combining information about the client or specific case with information about their behaviour, creditors can gain a more complete view of the case as a whole and more accurately predict how things will play out if a given strategy is used.

Ability to make more informed decisions

Informed decision-making is the cornerstone of successful debt recovery, and behavioural scores play a central role in this process. Armed with a detailed understanding of debtor behaviour, creditors can make decisions that are not only based on historical data but also on the present context. This ability to make real-time, data-driven decisions enhances the agility and adaptability of creditors when it comes to responding to the dynamic nature of debt collections.

The essential ingredients of any profile

Crafting an effective debtor profile involves a meticulous examination of two key components: the probability of repayment and the probability of self-service. These essential ingredients provide creditors with a comprehensive understanding of the debtor's characteristics, and as we’ve seen, can guide the development of tailored debt recovery strategies.

Probability of repayment

A key part of any debtor behaviour score is an assessment of the probability of repayment. This crucial metric gauges how likely the client is to fulfil their debt obligations. By evaluating financial history, creditworthiness, and behaviour patterns, creditors gain insights into the debtor's capacity and inclination to repay. This probability helps to form the foundation for a targeted and realistic debt recovery plan.

Probability of self-service

In tandem with repayment probability, correctly assessing the probability of self-service will tell you how actively a client engages with tools like customer payment portals. Some debtors are inherently proactive, preferring to pay their debt down whenever they’re in a position to do so, as well as use tools like self-service payment options. However, others may need more guidance, prompting, or reminders to make payments. Understanding this variable and where a given customer sits on the scale from ‘proactive’ to ‘reactive’ allows creditors to tailor communication strategies more appropriately, offering the right level of support and encouragement based on the debtor's preferences and behaviours.

What these two values can tell us about a given profile

By correctly assessing the probability of repayment and the probability of self-service and using them in tandem, creditors gain insights into the debtor's likelihood to repay and how proactive and independent they’re likely to be during the debt repayment process. Armed with this knowledge, creditors can tailor recovery strategies to individual debtors, providing the necessary support while optimising the chances of recovery.

Where receeve comes in

receeve is a prominent player in debt collection solutions. We have already developed a comprehensive and industry-leading debt collections platform that delivers tools to help with strategy creation, case management, dealing with recovery partners and more - and now we’re set to launch a groundbreaking behavioural scoring tool in April 2024.

In line with what we’ve spoken about already, this tool assesses a debtor's probability of repayment and self-service tendencies, allowing creditors to allocate them to a collections strategy that aligns with their profile. In early deployment, this new tool has demonstrated an impressive accuracy rating of over 90% - a clear statement of its potential to revolutionise debt collections.

FAQs on the use of behavioural scores in debt collections

How often should behavioural scores be updated?

How often you should update behaviour scores depends on debtor behaviour. Typically, regular updates (such as monthly or quarterly) ensure that scores accurately reflect the current financial habits and responsiveness of a given debtor, while also providing scope and opportunity for updating should those behavioural tendencies change over time.

Can behavioural scores be used for different types of debts?

Absolutely! Behaviour scores are versatile and applicable to various types of debts. Whether it's consumer loans, credit cards, business debts or something else entirely, the underlying principles of assessing debtor behaviour remain consistent.

What are the legal considerations when using behavioural scores in debt collections?

When using behaviour scores in debt collections, it’s vitally important that you take all associated and applicable legal considerations into account, and that you comply with the law in full. As a result, ensuring compliance with debt collection laws like any local equivalent of the U.S. Fair Debt Collection Practices Act, as well as data protection regulations such as GDPR are both equally essential to maintaining ethical and lawful practices in the use of behaviour scores for debt collection.

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