Published on:
6 October 2022 at 11:00 a.m. ET
Content Director, Collections & Recovery
The iA Institute
http://www.insidearm.com/news/00048592-guide-building-robust-vendor-management-p/
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For a lot of lenders, especially newer fintechs, who have spent the last two years originating loans and lines of credit, the obvious collections strategy solution to the challenge of an influx of charged-off or delinquent accounts is to use third-party collections agencies to handle delinquent and charged-off accounts.
How you vet those vendors and how you manage those vendor relationships will make or break your collections strategy. Proper management of those third-party collections vendors is critical to a successful recovery strategy, and it mitigates the risks associated with collecting on consumer debt.
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Consumers are leveraging credit and loans at record levels, and you might not be prepared for the record increase in originations leading to a major increase in delinquent and charged-off accounts. Plus, consumers are still facing challenges like lingering inflation and economic uncertainty, and the CFPB has been extremely active and vocal about debt collection regulation, which makes collecting delinquent and charged-off accounts risky.
Bringing in a third-party vendor can help solve some challenges, but don’t forget that outsourcing your collections doesn’t necessarily reduce your risk.
Outsourcing work to a service provider with dubious practices could invite a supervisory review, which could lead to serious reputational, if not financial and legal, damage if enforcement action is taken. The CFPB plans to use its supervisory authority to examine any nonbank financial company that poses a risk to consumers, so it is imperative that companies who previously believed they were not subject to the oversight of the CFPB start preparing now.
Read on to find out how to improve (or build) a robust vendor management program:
Finding a good vendor can be a real challenge, especially for newer collections & recovery departments. Be on the lookout for these early red flags from your potential vendor partners:
You can mitigate a lot of risk if you are picky when choosing your partners. Regulators expect proper due diligence before you select a partner.
Make sure to get good answers to the following 5 questions when vetting prospective partners:
For more, read Looking for a New Vendor? These 4 Red Flags Should Stop You in Your Tracks and Creditors: Can You Outsource Risk by Outsourcing Collections? Not Anymore.
It can be tough to strike a good vendor management balance. Creditors who are too prescriptive can damage their relationships with vendors. Those who are not prescriptive enough can find themselves at risk for regulatory or reputational damage. But maintaining good relationships with your third-party vendors is key to a successful collections & recovery strategy. Here are four best practices for managing those vendors once they’re on board:
For more details about vendor management best practices, check out 4 Vendor Management Best Practices for Collections and Recovery.
Once you’ve set those expectations, it’s time to audit your third-party agency thoroughly to ensure those expectations are being met. Audit frequency will vary, but you need to plan to be on-site for an audit at least yearly, and remember: audits don’t have to be adversarial. Both parties should go into an audit with open minds. Your vendor’s success is your success, so here are three ways collections & recovery vendors can support their partners in advance of an audit:
If you’ve provided adequate support, the audit should go smoothly. If they don’t, that could be a warning sign. Here are two MAJOR major audit warning signs that you may need a new vendor partner:
Bonus material:
4 Best Practices to Optimize Collections & Recovery Vendor Audits.
You can also hear from experts at vendor management in our three part on-demand webinar series, The Vendor Management Masterclass.
The Vendor Management Masterclass I
The Vendor Management Masterclass II
The Vendor Management Masterclass III
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