Collect smarter, not harder: Ethical debt collection with technology

For Lenders, debt collection remains at the core of their operations. When engaging with Lendsqr lenders, one recurring challenge stands out – the ethical and efficient incorporation of technology into debt collection. This hurdle is evident even in lenders’ adoption of loan origination software and Artificial Intelligence (AI). Because they know if technology is properly implemented, the end goal is a borrower pool they can efficiently manage.

As a digital lender, how can technology be ethically employed for effective debt recovery? While loan origination is essential, our focus today is on the practical side of debt collection, which utilizes technology. 

Before we dive into ethical debt collection methods, let’s discuss what lenders should never resort to, regardless of their urgency to recover debts:

Threatening SMS to Customers and Contacts

Spooling metadata from a borrower’s device is strictly meant to facilitate your informed lending decisions by providing valuable insights into their financial behavior. However, we must acknowledge the ethical considerations surrounding this practice. When such access granted by the borrower is abused, it reflects poorly on the lender’s integrity and the ecosystem. Any lender caught mishandling borrowers’ data must be prepared to face the consequences of their actions. These include potential legal repercussions and damage to their reputation, as they’ll be tagged unethical lenders. Remember, a borrower’s right to data privacy is not negotiable. 

Image and reputation defamation

Plastering unflattering images of customers who owe you on social media is not an effective debt collection strategy. It fails to expedite repayment and can have detrimental consequences. Instead of encouraging prompt payment, such public shaming tactics often backfire, causing embarrassment to the borrower and potential legal repercussions for the lender. This approach can damage a lender’s reputation and deter prospective borrowers from seeking their services. It also raises concerns about privacy and ethical business practices. Look up the many legal ways to recover loans. 

3. Incessant and intrusive calls to customers’ contacts

Making calls to friends and relatives of customers should be avoided unless there is explicit authorization, such as a signed Guarantor. Engaging in such practices will tarnish the reputation of your loan business and poses significant risks related to data and privacy infringement. Instances of unsolicited contact with individuals not directly involved in the loan agreement can lead to complaints and legal action and jeopardize your loan business’s continuity. Read more about ethical loan recovery methods.

Moving on, let’s take a look at some ethical debt collection method using technology:

Multi-modal collection using various channels

Since not all borrowers have similar needs, it’s sensible to choose a loan management software that offers your borrowers a plethora of repayment choices when they need to repay their loans. For example, Lendsqr offers its lenders varying repayment channel options, such as debit cards, which we harness with Paystack. Meanwhile, for Direct debit, we use NIBSS and Remita. We also support inbound virtual accounts. We offer manual payment options and USSD payment methods for borrowers who may not be tech-savvy. USSD, albeit not very common, can be helpful in low-technology areas and communities. Finally, Lendsqr offers an option to pay with a one-time payment link. With this link, borrowers can get assistance from family and friends with their loan repayment. 

Scheduler and AI algorithm for timely debt collection

Having a scheduler or using an AI algorithm to determine the best collection time for your borrowers helps lessen cases of loan defaults. For example, Lendsqr allows its lenders the capacity to send push notifications to their borrowers to remind them days before their loan repayment is due. Or send them payment links to facilitate easy repayment. Other times, machine learning, algorithms, past data, and patterns are used to determine the most effective debt recovery times to schedule them appropriately. On credible payment platforms like Paystack, Lendsqr lenders can schedule loan repayment at their borrowers’ behest. This is especially useful for borrowers who do not want to fall victim to missed payments. 

Debt recovery using tools like GSI debit mandates

For larger banks and MFIs that integrate with Lendsqr’s loan management software, they have Global Standing Instruction (GSI) to trigger debt recovery. Look at some possible upsides of using GSI as a loan repayment method. Some lenders opt for a scheduled direct debit mandate and the ecosystem available. Regardless, we recommend sticking to whichever tool gets the job done (legally, of course!) because that’s the right fit for your loan business.

Start collecting smarter, not harder

We understand the struggle: traditional debt recovery is frustrating, slows everything down, and leaves both you and your borrowers feeling drained. Imagine a different picture – one where scheduled direct debit mandates handle the heavy lifting, data-driven insights from AI algorithms guide your approach, and multi channels offer various repayment options to your customers. This isn’t just a dream, it’s the reality technology can bring.

Don’t let outdated methods hold you back. We believe adjusting your debt recovery strategy with the help of technology, can turn a struggling loan business into a highly profitable one. As always, we’ll be happy to answer your questions. Send us a message at [email protected].