Extending our Collection and Recovery efforts

We are extending our C&R (Collection and Recovery) efforts with the help of specialized collection agency services.

For the past six months or so we have worked on enhancing and simplifying the C&R efforts to maximize your returns. We have automated messages going out with payment reminders as well as overdue notifications with email, SMS and also in regular mail. We also implemented automatic phone calls to customers in debt.

The best practice tells us that the most effect can be achieved when working with the overdue accounts as early as possible. This means loans that are overdue for up to 60 days. After collecting some data between these stages to understand the effect so far, we are planning on working to improve on this further.

On the other hand, we have also been working on improving the processes on the recovery side – that is, what happens after loans default – in our case 60+ days of principal overdue.

You have seen the change in reporting where we have structured the recovery into 5 simple steps – process started, in court, decision received, in collection and closed. Whereas we still have some minor data discrepancies here and there – notably some specific loans in Stage 5 – this has considerably simplified the understanding of where the defaults actually are in the recovery process.

However, this process has heavy reliance on legal recovery – using the legal means (courts) to reclaim overdue payments. This takes a lot of time from the moment the process is initiated to the point where there is legal opportunity for specific institution (i.e. Bailiffs) to start the actual collection process.

Depending on countries, it can take anywhere from 4-6 months (in Estonia) up to 1.5-2 years (in Spain). Since in some markets we have only operated about the same length of time or less, this explains the limited number of successful full recoveries.

That said, we have now gone the full circle in all countries and are ready to add another layer – collection agencies – to the mix. Therefore, from this week you will see fewer cases directly sent to court and instead they will be handed over to specific collection partners in different countries for pre-legal recovery attempts.

We will first start a 3-6 month test project to estimate the efficiency of this process, so there will be no immediate changes in the reporting, but all accounts that are defaulted (Stage 1) will be immediately handed over to collection agencies to be worked on from now on. Effectively the goal is to increase the number of recovered loans within the first 6 months after default, which is the prime time for collection.

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7 thoughts on “Extending our Collection and Recovery efforts”

    1. We decided to discontinue publishing the bailiff messages since we received those from only some bailiffs, only sometimes (not always), only in Estonia and in a non-standardized way, so there is no consistency that we could enforce nor could this be used reliably to show any developments in the recovery process.

      On the other hand, the bailiff procedure in Estonia is very much defined by the law, so you can safely expect the bailiffs to act according to the law and do everything they can or should to enforce the court order. And you will see if they are successful or not by simply looking whether the payments are coming in or not.

  1. Hi Taavi,

    while working on improving the collection and recovery is always welcome I fail to understand what Bondora wants to do in specific with overdue loans. I hope it does not mean that loans will “just” be rescheduled and, eventually, will default later. Would you be so kind to explain it with more more details? Will you only send the “new”, Stage 1 loans to this collection agency or also loans that are in already in Stage 1 or 2,3 and 4?

    I am also concerned about your Statement that the prime time for recovery was within the first 6 month after default. If I look onto my defaulted loans, and there are many, most of them defaulted already 1+year ago. Most of them are from Estonia. Could you give more insight how Bondora will make recovery on those 60+overdue loans? In order to answer this question, Bondora could provide an update on the defaultcurves which will show if there is still recovery after 6 month after default.

    When will it be possible to sell 60+overdue loans on the secondary market or back to Bondora?

    1. With overdue loans there are number of ideas that we want to test out, but there are two main themes – catching people on times when they actually have money (e.g. paydays, making sure they don’t miss payments etc) and secondly better intelligence based on the data to reduce the number of such people getting to the market in the first place.

      We will send mostly current and new Stage 1 loans to the collection agencies, but we’ll probably also send some Stage 2 and 3 loans, depending on the market to see if that would speed up the process. Stage 4 loans will not be sent to collection agencies.

      What was meant there, was that prime time for PRE-LEGAL collection is first 6 months. After that, the cases usually still end up in court (legal recovery), which we are currently doing and in some markets, like in Estonia, that seems to work okay. The question is, can the funds be collected even earlier – we believe so.

      If the loans that defaulted 1+ years ago, have gone through the court process and are currently at bailiff, then there’s not a lot more we can legally do, unfortunately. Keep in mind though that a large portion of legal recovery historically has happened more than 1 year after default.

      You can see some statistics on this from the Actual and expected recovery rate comparison graph located here:
      https://www.bondora.ee/en/invest/statistics/interest-rates

      About selling 60+ overdue loans. Currently we have no system for purchasing the defaulted portfolio, but clearly this is a business decision that we are looking at. So far, we have not made any decisions for doing so.