Nothing damages otherwise healthy portfolio performance more than client defaults and losses. It’s critical for long-term success to get these accounts back up to speed as quickly as possible. By implementing strategies proven to help struggling accounts, you can see significant progress quickly to protect your business’s overall financial health and reputation.
Let’s explore the proven best practices to reduce defaults and losses of asset lenders’ portfolios.
1. Thoroughly Evaluate Potential Borrowers
Kind of a no-brainer, right?
The truth is that when it comes to assessing credit worthiness, too many lenders aren’t as vigilant as they think they are. The importance of the initial risk assessment cannot be overstated, as a borrower’s financial health, credit history, and more all offer fair indications of their likelihood to comply with contract terms. When assessing a potential borrower, consider the following factors:
- Legal background check
- Income verification and profit and loss statements
- Credit reference
- Collateral evaluation
These factors allow lenders to learn more about their potential clients and indicate their likelihood of avoiding defaulting on terms.
2. Implement Systems to Observe Portfolio Performance
One of the best ways to reduce account defaults and losses is to catch them before they become an issue. Creating systems where you can consistently observe account performance allows you to monitor key metrics like:
- Late or partial payments
- Inconsistent client communication
- Industry-wide downturns
While any single sign in isolation may not be cause for alarm, if you start noticing several occurring, it might be time to take a more active approach with the client.
3. Make Communication and Payment Easy
All business relationships are built upon communication, and by making all the crucial information and actions clear, easy, and accessible, consistent payment becomes more likely. Consider the following steps to ensure communication stays clear between both sides:
- Set automated dates for metric reviews and client conversations
- Offer multiple means of accessibility via phone, email, or in-person and regular windows of available time to contact
- Leverage technology for easy payments or set recurring schedule
By keeping both sides up to date on key account information, surprises can be avoided, and guidance can be given when needed to steer clear of more significant issues.
4. Offer Custom Solutions to Struggling Accounts
When an account begins to struggle, it’s essential to approach the problem with a healthy mindset to find a resolution quickly. At ACS, we believe in building custom solutions to help bring loans back up to speed, and often this involves considering the following:
- Offer an alternative payment plan
- Address the root cause of the issue and routes to resolution
- Consider collateral to offset losses
By taking an objective, solution-focused approach to resolving the issue, you can find a route forward that works for both sides.
At Asset Compliant Solutions, we know that at the core of our industry lies partnerships that look to build and benefit the borrower and lender whenever possible. By pooling resources when it comes to industry trends, business performances, and what new strategies and technologies might be best leveraged moving forward, both sides have a higher likelihood of reaching their financial goals.
Defaults and losses are an unavoidable aspect of our industry. Still, by responding to them effectively and efficiently as soon as the warning signs become evident, these issues can be reduced so accounts return to a healthy status in a fair, fast, and respectful manner to all involved.