CREDIT AND COLLECTION COLLECTION

LESSON #1
- the process of collecting overdue or
A credit is the ability to borrow money outstanding payments from
or obtain goods and services with the customers who have not paid their
understanding of repaying the bills on time.
borrowed amount at a later date.
A credit involves a financial STAGES OF COLLECTION
arrangement where a borrower is  Pre-Collection: Reminder notices,
granted access to funds, often with friendly calls
Interest. It can be extended through  Early Collection: Direct contact,
credit cards, loans, or other financial negotiation
instruments.  Late Collection: Formal demands,
A positive credit history, legal action
reflecting timely repayments, can
enhance one's creditworthiness, Importance of Credit and Collection
making it easier to secure future  Impact on Cash Flow: Ensures
loans. However, mismanagement of business liquidity and operations
credit may lead to financial continuity.
challenges and negatively impact  Customer Relationships: Balances
one's credit score. maintaining good customer
relations with the need to collect
payments.
 Risk Management: Helps in
assessing the risk of lending and
managing overdue accounts.

Key Terms and Concepts

 Creditworthiness: Ability to repay
a debt
 Debt: Money owed by one party to BEST PRACTICES
another  Consistency: Regularly follow up
 Default: Failure to repay a loan on overdue accounts.
according to the terms agreed  Documentation: Keep accurate
 Credit Limit: The maximum records of all communications
amount that can be borrowed and agreements.
 Collection Agency: A company  Legal Compliance: Understand the
hired to recover funds owed legal framework governing debt
collection.
THE CREDIT PROCESS  Customer Focus: Maintain a
Steps in Credit Evaluation: professional and empathetic
 Assessing the applicant’s credit approach.
history
 Setting credit terms COMMON CHALLENGES
 Monitoring account activity  Late payments
 Documentation: Importance of  Delinquent accounts
maintaining accurate records.  Managing customer disputes

THE COLLECTION PROCESS SOLUTIONS

Strategies for Effective Collection:  Establishing clear credit policies
 Timely communication  Training staff in negotiation and
 Negotiation and payment plans conflict resolution
 Legal considerations and actions
 Tools for Collection: 5Cs of CREDIT
Automated systems, payment 1. Character - refers to the borrower’s
reminders, credit reporting reputation and track record for
repaying debts. Lenders assess the
borrower's honesty, reliability, and
integrity in fulfilling financial
obligation.
 Factors Considered: Credit history, current job, how their industry is
references, employment history, performing, and future job stability.
and past dealings with creditors.  Factors Considered: The
conditions of the loan, such as
2. Capacity - Capacity refers to the the interest rate and the amount
borrower’s ability to repay the loan of principal, influence the lender’s
based on their income and financial desire to finance the borrower.
situation. Lenders evaluate whether
the borrower has sufficient income to 5. Capital - Capital is the amount of
cover current debts and the new loan. money that an applicant has. (based
 Factors Considered: Income, on google kasi wala sa ppt)
employment stability, debt-to-
income ratio, and existing CREDITWORTHINESS
financial obligations. - evaluates your character, capacity
to repay, the capital at your disposal,
3. Collateral - refers to any assets the collateral you provide, and the
that the borrower pledges as security conditions surrounding your loan.
for the loan. If the borrower defaults,
the lender can seize the collateral to CREDIT RISK
recover the loan amount. - is the risk that some (or all) of the
 Factors Considered: The value repayments may not be made, and
and type of assets pledged, such that the creditor may lose some (or
as real estate, vehicles, or other all) of its principal.
valuable property.
MEASURING CREDIT RISK
4. Condition - In addition to examining  Credit Scoring: Using data-driven
income, lenders look at the general models to predict the likelihood of
conditions relating to the loan. This a borrower defaulting based on
may include the length of time that an their financial history and other
applicant has been employed at their relevant factors.
 LESSON #2
 Portfolio Analysis: Examining a THE COLLECTORS JOB
group of investments to
understand the intertwined risks JOB DESIGNATIONS OF A COLLECTOR
and potential returns.  DEBT COLLECTOR
 Stress Testing: Simulating  COLLECTIONS AGENT
extreme market conditions to  COLLECTIONS SPECIALIST
evaluate how certain scenarios  REVENUE AGENT
might impact the ability of  CI / COLLECTOR
borrowers to repay their loans.  ACCOUNTS RECEIVABLE CLERK

DUTIES OF A COLLECTOR
 Contacting clients with overdue
accounts
 Negotiating payment
arrangements
 Updating account records and
tracking promises to pay
 Escalating unresolved accounts
for legal or further action

SKILLS AND COMPETENCIES

 Strong communication and
interpersonal skills
 Knowledge of credit policies and
legal regulations
 Conflict resolution and negotiation
abilities
 Attention to detail in
documentation
ETHICAL AND LEGAL LESSON #3
CONSIDERATIONS CREDIT POLICIES AND PROCEDURE
 Understanding data privacy and
fair debt collection practices IMPORTANCE OF CREDIT POLICIES
 Avoiding harassment or unethical  Explore the role of credit policies
pressure in cash flow management.
 Transparent communication about  Examine the risks of granting
terms and consequences credit without proper vetting.
 Discuss real-world examples of
IMPACT ON FINANCIAL HEALTH companies that succeeded or
 Accelerating cash inflows failed due to credit management.
 Reducing bad debts
THE ROLE OF CREDIT POLICIES
 Supporting credit risk
 Consistencies and
management strategies
Standardization
 Risk Mitigation
CHALLENGES FACED BY
 Cash Flow Management
COLLECTORS
 Customer Relationship
 Dealing with hostile or evasive
Management
customers .
 Navigating economic hardships
COMPONENTS OF SOUND CREDIT
affecting payment behavior
POLICY
 Managing workload across
 Credit Application Process
multiple accounts
 Credit Terms
 Credit Limit
 Monitoring and Reporting
 Communication
EVALUATING CUSTOMER CREDIT 3. Utilizing Credit Scoring Models
WORTHINESS 4. Implementing Credit Terms
1. Credit Ratings 5. Monitoring and Adjusting Credit
2. Financial Statements Limits
3. Historical Performance
4. Debt Profile LEGAL AND ETHICAL
5. Collateral or Security CONSIDERATIONS
6. Industry Analysis 1. Understanding the Fair Debt
7. Management Evaluation Collection Practices Act (FDCPA)
8. Market Conditions 2. Ensuring Accurate and Transparent
Communication
CREDIT PROCEDURES AND 3. Respecting Consumer Privacy
DOCUMENTATIONS 4. Validating Debts
1. Establishing Credibility 5. Handling Customer Complaints
2. Assessing Risks 6. Staying Up-to-date with Legal
3. Negotiating Loan Terms Changes
4. Demonstrating Financial
Responsibility TECHNOLOGY AND CREDIT
5. Highlighting Financial Strengths MANAGEMENT
6. Facilitating Financial Planning 1. Enhanced Data Analysis
2. Automation of Processes
CREDIT LIMIT 3. Realtime Monitoring
The maximum a mount of credit a 4. Improved Risk Mitigation
financial institution extends to a client.
IMPACT OF POOR CREDIT
SETTING CREDIT LIMIT AND TERMS MANAGEMENT
1. Understanding Customer Risk  You may find it hard to get finance
Profiles  You may get unfavourable deals
2. Balancing Sales Risks and  It limits your rental options
Opportunities
 Getting certain jobs might be LESSON #4
difficult CREDIT ANALYSIS AND RISK
 Fraud and Errors can reduce your ASSESSMENT
score
CREDIT ANALYSIS
Credit analysis is a type of financial
analysis that an investor or bond
portfolio manager performs on
companies, governments,
municipalities, or any other debt-
issuing entities to measure the
issuer's ability to meet its debt
obligations.

OBJECTIVES
 To minimize risk of non-payment
or bad debts.
 To evaluate the borrower’s
financial condition.
 To support informed credit
decisions.

KEY COMPONENTS OF
CREDITWORTHINESS
1. CHARACTER - It more specifically
refers to credit history, which is a
borrower’s reputation or track record
for repaying debts.
2. CAPICITY - It measures the
borrower’s ability to repay a loan by
comparing income against recurring QUANTITATIVE
debts and assessing the borrower’s  Involves analyzing:
debt-to-income (DTI) ratio.  Financial statements
3. CAPITAL - Lenders also consider (Balance Sheet, Income
any capital that the borrower puts Statement, Cash Flow)
toward a potential investment. A large  Financial ratios
capital contribution by the borrower  Credit scores and payment
decreases the chance of default. history
4. COLLATERAL - It can help a  Based on numerical and financial
borrower secure loans. It gives the data.
lender the assurance that if the
borrower defaults on the loan, the CREDIT SCORING SYSTEM
lender can get something back by  Uses a standardized scoring
repossessing the collateral. model
5. CONDITION - This includes the loan  Automatically generates a credit
amount, interest rate, purpose of the score based on factors like
loan, and overall economic payment history, amounts owed,
environment. length of credit history, types of
credit used, and recent credit
TYPES OF CREDIT ANALYSIS inquiries.
QUALITATIVE
 Evaluates the borrower's RETAIL CREDIT ANALYSIS
reputation, employment/business  Focused on individual or personal
history, industry condition, and borrowers
legal and political environment  It looks at the Employment status
 Focus on Non-numerical and income, credit history and
information personal debts, and expenses
CORPORATE CREDIT ANALYSIS receivable into cash quickly
 Applied to business or without significant loss.
institutional borrowers.  OPERATIONAL RISKS - Risk
 It examines the company’s arising from failed internal
financial performance, cash flow processes, human errors, or
projections, credit and trade system failures that affect the
reference. credit and collection process.
 CONCENTRATION RISK - The risk
RISK ASSESSMENT of financial loss due to
It is the process of evaluating the overexposure to a single
likelihood that a borrower (individual borrower, group, or industry.
or business) will fail to repay a loan
or credit obligation. It helps lenders TOOLS FOR CREDIT ANALYSIS AND
or businesses decide whether to RISK ASSESSMENT
extend credit, how much to lend, and  FINANCIAL RATIO ANALYSIS -
under what terms. Analyzing the borrower’s financial
statements using ratios to
TYPES OF RISK understand their financial health.
 CREDIT RISK - The borrower will  TYPES OF RATIOS:
not repay the loan or credit  Liquidity Ratios – Check if
extended to them, leading to a the borrower can pay
loss for the lender or creditor. short-term obligations.
 MARKET RISK - The risk that Example: Current Ratio =
external economic factors (e.g., Current Assets ÷ Current
inflation, interest rates, recession) Liabilities
negatively affect the borrower’s  Solvency Ratios –
ability to repay. Measure long-term
 LIQUIDITY RISKS - The lender or financial stability and debt
creditor cannot convert accounts load.
 Example: Debt-to-Equity Ratio legal cases and loan records
= Total Debt ÷ Total Equity from other lenders
 Profitability Ratios – Show
if the business is earning  AGING SCHEDULE OF ACCOUNTS:
enough to cover expenses.  A report that shows how
Example: Net Profit Margin = long receivables have been
Net Income ÷ Revenue unpaid (used by businesses
to track customers who owe
 CREDIT REPORTS AND CREDIT them).
SCORES:  It shows which customers
 A report that shows a are paying late, helping
person’s or business’s past identify potential collection
borrowing history, from credit risks or bad debts.
bureaus or internal systems.
 It includes the Payment  COLLATERAL APPRAISAL
history, outstanding debts,  Assessing the value of
and credit limits used and property or assets offered
number of loans/credit cards as security for the loan.
 Ensures that the lender can
 BACKGROUND AND TRADE recover value if the
CHECKS borrower fails to pay. If the
 Verifying the borrower’s loan is ₱100,000, the
personal, employment, or collateral should be worth
business background and at least the same or more.
reputation.
 It includes the work history or
business track record,
references from suppliers (for
business clients), criminal or
LESSON #5 framing strategies than merely
ACCOUNTS RECEIVABLE performing collection duties.
MANAGEMENT  Keeping account balances up to
It refers to the process of handling date, making account
and tracking the amount a customer reconciliations a seamless
owes to you for the goods purchased process.
on credit. It includes functions such  Rectifying errors in invoices and
as monitoring invoices, collecting improving dispute management
payments, evaluating and mitigating practices.
credit risks, and resolving customer
disputes. OBJECTIVES OF AR MANAGEMENT
 Credit Workflow Management -
USES OF AR MANAGEMENT Effective receivable management
 Monitor and record outstanding is significant to boost sales and
amounts on invoices frame accurate credit policies for
 Define relevant credit terms and customers.
decide on the credit period  Streamline Cash Flow
 Monitor and resolve long-pending Management - AR management
invoices gives you a clear picture of where
 Track the payment behavior of and how much of your cash is tied
customers and leverage insights up and records all sales
to boost collections. transactions systematically.
 Improved Customer Relations - It
BENEFITS OF AR MANAGEMENT is important for businesses to
 Identifying and resolving late ensure transparency in the
payments from customers early accounts receivable management
on. process to build a stronger and
 An efficient accounting team long-lasting relationship with
that’s always more focused on your customers.
 Accurate Bank Reconciliation - automated Credit Management
Bank reconciliation involves software with real-time credit
managing various remittance data, automated reviews, and
formats, including addressing intelligent credit suggestions.
missing remittances.  Create documents for terms and
 Improved Invoicing Issuance and conditions - Clearly communicate
Tracking - Streamlining invoicing all payment terms, including
processes can prevent billing interest or penalties, ensure
errors and ensure invoices reach customers fully understand and
customers. It can also assist agree to them before signing, and
organizations in providing various consistently document all
payment choices, e.g. credit/debit interactions and agreements
cards, ACH drafts. across emails, texts, and calls.
 Effective Deduction Management  Clear Collection Plans - Develop
Process - In case of disputes, a plan for handling delinquent
effective receivable management accounts by identifying payment
enables AR teams to explain each delays, using automated
item to the customer and offer collections solutions to integrate
alternative solutions such as with invoice portals, track
payment plans. customer behavior, and gain
insights to optimize collection
IMPORTANT STEPS IN AR strategies and ensure timely
MANAGEMENT payments.
 Implement Credit Rules - Before  Build invoice template and send
granting credit, evaluate all reminders at regular intervals -
potential risks using a consistent Send invoices promptly after
credit assessment process for all delivering goods or services with
customers, ensure terms benefit complete, up-to-date information,
both parties and support faster clearly stating payment terms and
collections, and consider using due dates, and include a payment
 link in reminder emails to enable preventing them from working
quick and easy customer efficiently toward shared goals.
payments.  Absence of empirical data for
predicting negative outcomes -
AR MANAGEMENT CHALLENGES Without a system to leverage
 Misalignment between sales and empirical and historical data, it
finance goals - Conflicts can becomes difficult to predict
arise between sales and finance adverse changes in a customer’s
departments due to differing financial status, increasing the
goals, as sales prioritize boosting risk of significant losses from
revenue while finance aims to unpaid obligations.
minimize bad debt, leading to  Disruptions in AR workflows -
issues when sales offer credit Efficient management of credit
terms that finance may reject. transactions requires consistent
 Inefficiencies due to manual documentation, particularly in
processes - Manual processes terms of invoicing and payment
and gaps in existing systems flows. Inadequate streamlining of
consume significant time and the accounts receivable
resources, leading to processes can lead to disruptions
inefficiencies and poor accounts and gaps within the AR workflow,
receivable management in the hindering the smooth continuity of
absence of automation. operations
 Impeded collaboration due to data
fragmentation - The lack of a 7 BEST AR PRACTICES
unified data system and real-time  Clear Internal Process - Often,
access creates information the root cause of your collections
barrier that hinder collaboration and cash flow issues is simply
among customer-facing teams poor internal processes. One of
like sales and collections, the easiest ways to mitigate these
constant issues is to make sure
 that each team understands the customers timely. Additionally,
others end objective. Sales should you can streamline the invoicing
focus on getting orders, and the process with meticulous attention
finance team should ensure that to detail.
the customer is financially sound  Timing and tone - In invoicing, two
enough to warrant credit terms. crucial aspects must be perfected.
However, it is equally critical for First, ensure that invoices are
each team to support the other in sent out promptly and in line with
these processes. agreed payment terms.
 Two-way communication - Establishing a consistent invoice
Establishing effective two-way delivery schedule prompts
communication is vital, both customers to anticipate and
internally and externally. This may prepare for on-time payments.
seem like an obvious factor, but it  More payment options - When it
is often ignored, especially when comes to facilitating payments,
it comes to the finance team and providing multiple options is
customers. Enable easy-to-use paramount. This approach
and numerous options for ensures that customers can make
stakeholders—both internal and payments even when their
external to interact in the way authorized personnel are
they choose to. unavailable due to travel or other
 Robust post-sales setup - Many commitments.
collection issues stem from  Quality all the way - In B2B
customer dissatisfaction with transactions, particularly those
post-sales support. This tip involving deferred payments,
applies to all customer-facing maintaining high-quality
teams. As a member of the standards is essential. Quality
finance team, you should ensure should encompass not only the
that all sales-related products or services you provide
documentation reaches the but also the quality of customer
 interactions at every stage of LESSON #6
engagement. COLLECTION STRATEGIES
 AR automation - One of the most
important and urgent steps to I. PROACTIVE (SOFT COLLECTION)
streamline receivables 1. Clear Credit Policies and Terms
management is to automate the  Prevention is key: Ensuring
process. API-enabled automated customers understand payment
accounts receivable will not only terms, due dates, penalties for
handle collections or invoice late payment, and available
issues but helps create efficient payment methods before they
workflows, reduce process even incur a debt. This minimizes
complexities and operational misunderstandings and disputes.
costs, and accelerate your teams’  Well-documented agreements:
productivity. Having clear loan agreements,
promissory notes, or sales
contracts.

2. Effective Invoicing and Billing:

 Timeliness: Sending invoices
promptly after goods/services are
delivered.
 Accuracy and Clarity: Invoices
must be correct and easy to
understand, clearly stating the
amount due, due date, and
payment instructions. This avoids
disputes that delay payment.
 Multiple Payment Options:
Offering diverse and convenient
payment channels (online banking,
 mobile wallets like and obtain a payment
GCash/PayMaya, over-the- commitment.
counter payments) to make it  Written Communication
easy for customers to pay. (Email/Letters): Formalizing
reminders and increasing urgency
3. Pre-Due Date Reminders: as the debt ages.
 Courtesy reminders: Sending
automated or manual reminders II. MID-STAGE COLLECTION
(via email, SMS, or even a STRATEGIES (INTERNAL HARD
courtesy call) a few days before COLLECTIONS)
the due date. This helps 1. Aging Reports Analysis
customers who might have simply  Prioritization: Using aging reports
forgotten. to identify and prioritize accounts
 Personalized communication: that are most overdue o
Tailoring messages to the represent the largest amounts.
customer's preferred  Segmentation: Categorizing
communication channel and tone. debtors based on their payment
history, risk level, and reasons for
4. First-Party Collection Efforts (In- non-payment to tailor collection
House): approaches.
 Friendly overdue notices: Sending
polite reminder shortly after an 2. Negotiation Techniques:
invoice becomes overdue (e.g., 1-7  Be Discernment: Delving deeper
days past due). These assume an into why a customer hasn't paid
oversight rather than an (e.g., temporary financial hardship,
intentional non-payment. dispute, cash flow issues).
 Early Phone Calls: A polite phone  Flexible Payment Plans: Offering
call to inquire about the delay, customized installment plans,
resolve any potential issues (e.g., deferred payments, or partial
invoice error, delivery problem), payments, especially if the debtor
 genuinely faces a temporary  If the debt is secured by collateral,
setback. This shows empathy and understanding the legal process
increases the likelihood of some for repossession or foreclosure in
recovery. the Philippines. This is usually a
 Settlement Offers: For older, last resort for secured loans.
higher-risk accounts, offering a
discount on the principal balance 5. Utilizing Technology:
if the debtor pays a lump sum  Collection Software: Using
immediately. This is a "bird in automated systems to manage
hand" approach to recover at communication, track interactions,
least part of the debt. schedule follow-ups, and
 Debt Restructuring: For larger generate reports.
business debts, renegotiating the  Data Analytics: Using data to
terms of the loan (e.g., extending predict which accounts are likely
the term, adjusting interest rates) to default and to optimize
to make it more manageable for collection strategies.
the debtor.
III. ADVANCED & EXTERNAL
3. Communication Escalation: COLLECTION STRATEGIES (LEGAL &
 Increasing Urgency: Messages THIRD-PARTY)
become firmer, emphasizing the
consequences of non-payment 1. Final Demand Letters:
(e.g., late fees, negative credit A formal legal notice sent by the
reporting). creditor or their legal counsel,
 Different Contact Persons: In serving as a final warning before
some cases, escalating contact to legal action. It typically specifies the
a higher-level manager within the amount owed, the basis of the debt, a
collection department or a deadline for payment, and the
different company representative. intention to pursue legal remedies if
4. Leveraging Collateral (if applicable):
payment is not received. This is a with execution (e.g., garnishment
crucial step before litigation. of bank accounts, levy on
property, public auction of seized
2. Referral to Third-Party Collection assets).
Agencies:
Outsourcing the collection effort to 4. Alternative Dispute Resolution
specialized agencies that have (ADR):
expertise, resources, and often a  Mediation or Arbitration:
more aggressive approach (while still Exploring out-of-court settlement
adhering to laws). They typically work options facilitated by a neutral
on a commission basis. third party. This can be faster and
less expensive than litigation.
3. Legal Action (Judicial Collection): 5. Write-Offs:
 Small Claims Court: For debts  As a final accounting step,
falling within the small claims formally writing off debts that are
threshold (currently up to PHP deemed uncollectible after all
1,000,000 as of the last update, reasonable efforts have been
but subject to change), this is a exhausted. This impacts
simplified and cost-effective legal profitability but is necessary for
process where parties can often accurate financial reporting.
represent themselves without
lawyers.
 Civil Case for Sum of Money: For
larger debts, filing a regular civil
case in the Municipal Trial Court
or Regional Trial Court to obtain a
court judgment for the amount
owed.
 Enforcement of Judgment: Once a
judgment is obtained, proceeding
LESSON #7  PREVENTION OF HIDDEN FEES:
CREDIT LAWS Compares loan offers easily.

REVISED PENAL CODE (ESTAFA AND Republic Act No. 7394 - CONSUMER
FRAUD) ACT OF THE PHILIPPINES
 A law defining criminal offenses,  A comprehensive law designed to
specifically addressing deceitful protect consumer interests by
acts like "Estafa" (swindling or setting standards for product
fraud) where a person obtains quality, safety, advertising, and
property or money through fair trade practices, including
misrepresentation, causing aspects of credit and financing.
damage.
KEY ASPECTS
TRUTH IN LENDING ACT - Republic  PRODUCT SAFETTY: Ensures
Act No. 3765 product compliance with safety
 A law requiring creditors to standards
provide full and clear disclosure  FAIR BUSINESS PRACTICES:
of all costs and charges Prevents misleading
associated with a loan or credit advertisements.
transaction before it is finalized,  PRICING TRANSPARENCY:
ensuring transparency for Requires clear price tags for
consumers. consumer awareness.

KEY ASPECTS CREDIT INFORMATIONS SYSTEMS ACT

 FULL DISCLOSURE: Requires Republic Act No. 9510
lenders to disclose all charges  A law that established the Credit
upfront. Information Corporation (CIC) to
 PROTECTION FOR DEBTORS: centralize and maintain a
Empowers consumers with comprehensive credit information
information. system, allowing lenders to
 assess credit risk and promoting Republic Act No. 10870 - PHILIPPINE
responsible credit behavior. CREDIT CARD INDUSTRY REGULATION
 Purpose: Regulates how credit LAW
cards are issued and used in the  A law regulating the issuance and
Philippines. use of credit cards, setting
 Scope: Sets rules for fees, standards for fees, interest rates,
interest rates, billing statements, billing, and collection practices to
and collection practices for credit protect both cardholders and
card companies. issuers.
KEY ELEMENTS
Republic Act No. 10173 - DATA  CLEAR TERMS OF USE: Ensures
PRIVACY ACT OF 2012 clarity in terms and conditions.
 A law that protects individuals'  INTEREST RATE MANAGEMENT:
personal data by regulating how Regulates changes in interest
organizations collect, process, rates.
store, and disclose personal  COLLECTION PRACTICES:
information, ensuring privacy and Prevents harassment in debt
data security. collection.

KEY PRINCIPLES BSP Circulars & Guidelines

 CONSENT-BASED DATA  Specific rules and directives
HANDLING: Requires permission issued by the Bangko Sentral ng
for using personal data. Pilipinas (BSP) that provide
 SECURITY MEASURES: Mandate detailed regulations for financial
secure data storage practices. institutions on prudential lending
 REPORTING BREACHES: standards, risk management, and
Companies must report data fair consumer treatment in credit
breaches. and collection practices.
KEY ROLES LESSON #8
 FINANCIAL STABILITY: Ensures Negotiation and Settlement
banks follow responsible lending
practices. UNDERSTANDING NEGOTIATION AND
 CONSUMER PROTECTIONS: Sets SETTLEMENT ON CREDITS AND
limits on fees and fair debt COLLECTION
collection. In the context of credit and
 TRANSPARENT OPERATIONS: collection, negotiation and settlement
Defines clear guidelines for bank- refer to the process by which a
customer relationship. debtor and a
creditor (or their collection agency)
come to an agreement to settle an
outstanding debt, frequently on
modified terms or for less than the
entire amount owing. When a debtor
experiences financial difficulties and
is unable to fulfill their first payment
commitments, this is a typical
procedure.

NEGOTIATION
 A dialogue between the debtor (or
their representative) and the
creditor (or their collection
agency) to discuss the terms of
repayment.

SETTLEMENT
 Have you missed any payments?
Late or missed payments make
 your score go down, while paying lower lump-sum (often 40–60% of
on time builds your score. the debt)
 Stop Payments (Debt Settling via
DEBT SETTLEMENT Agency): Agencies may advise
 Debt settlement is a negotiation stopping payments and building
process where a creditor agrees an escrow fund to wait for
to accept a reduced payment as creditor willingness
full payment for a debt,  Receive Written Agreement: Get
particularly for unsecured debts the settlement terms in writing
like credit card debt. Negotiations before paying—this halts
can be done directly with collection and forgives the rest
creditors or through a debt  Pay & Resolve: Pay the agreed
settlement company. It's crucial to amount and confirm that the debt
demonstrate that you cannot fully is marked “paid-satisfied” or
repay your debts and convince “settled”
them that a reduced payment is in
their best interest. However, not LESSON #9
all creditors may accept a Outsourcing Collection Services
settlement, and it's essential to  Outsourcing debt collection
consider the implications and means delegating the
seek professional advice if responsibility of contacting
necessary. debtors, negotiating payment
plans, and handling legal aspects
HOW DEBT SETTLEMENT WORKS to a specialized agency.
 Financial Assessment: Calculate  This allows businesses to
what you owe and how much you leverage the expertise and
can realistically pay resources of a dedicated team
 Start Negotiating: Do it yourself or focused solely on debt recovery.
via a third party, proposing a
IMPORTANCE OF OUTSOURCING CHOOSING THE RIGHT PARTNER
 SPECIALIZED EXPERTISE:  EXPERIENCE AND EXPERTISE:
Collection agencies employ Look for a collection agency with
professionals with experience in a proven track record in your
debt recovery, negotiation, and specific industry and with similar
legal compliance. types of debts.
 FOCUS ON CORE BUSINESS: By  COMPLIANCE AND LEGAL
outsourcing collections, EXPERTISE: Verify that the agency
businesses can free up internal is knowledgeable about relevant
resources to focus on core laws and regulations and has
activities like sales, product robust compliance procedures.
development, and customer  TECHNOLOGY AND
service. INFRASTRACTURE: Ensure the
 IMPROVED COLLECTION RATES: agency has the technology and
Dedicated collection agencies infrastructure to support efficient
often have higher success rates and effective collections.
in recovering outstanding debts  COMMUNICATION AND
due to their specialized approach TRANSPARENCY: Choose an
and resources. agency that maintains open
 ENHANCED CUSTOMER communication and provides
RELATIONSHIP: Outsourcing can regular updates on the progress
help preserve customer of collection
relationships by employing a  COST AND FEES: Carefully
more professional and less evaluate the agency's fees and
confrontational approach to debt ensure they align with your
collection. budget and the value they provide
BENEFITS OF OUTSOURCING
COLLECTIONS
 INCREASED EFFICIENCY:
Dedicated collection agencies can
handle a higher volume of
accounts and resolve them faster
than internal teams
 REDUCED DELIQUENCY RATES:
Outsourcing can lead to a
decrease in the number of
overdue accounts and improved
cash flow.
 COMPLIANCE AND LEGAL
EXPERTISE: Collection agencies
are knowledgeable about relevant
laws and regulations, minimizing
legal risks associated with debt
collection.
 IMPROVED CASHFLOW: Faster
debt recovery translates to
improved cash flow and financial
stability for the business.