What is the loan recovery process?

As a digital lender, one of your foremost prayers is to get paid as and when due. Unfortunately, once in a while (too often than one would like), things never go as planned, and borrowers skip town with your loan, leaving you to bear the losses. This is often when you start thinking – how do I recover my money?

Interestingly, people often misinterpret the repayment/collection process with the recovery process. However, recovery involves a shift in strategy compared to repayment or collection. It’s about ethically stepping up efforts to retrieve what’s owed to you, employing assertive tactics to ensure full repayment of the loan.

What is the time limit for recovering a debt?

Typically, in the event of borrower default, commercial banks often classify loans as still “performing” even if payment hasn’t been received within 30 days. However, for entities outside major banks, such as digital lenders, a loan is probably considered delinquent just one day after the due date.

For this reason, it’s best for digital lenders to initiate the loan recovery process within seven days of the due date and provide a more prudent approach to lessen risks associated with potential defaults.

Let’s take a look at some key elements you should use to initiate loan recovery:

Open communication

This involves reaching out to the delinquent borrower through phone calls, emails, or pop-up notifications to remind them about the missed payment and discuss their current financial situation. Having a conversation can help you better understand their challenges and explore potential solutions together. Sometimes, borrowers may appreciate the opportunity to explain their situation and be more willing to work out a repayment plan that suits everyone.

Engaging loan guarantors

If a guarantor is involved in the loan agreement, it’s an excellent time to inform them about the missed payment. They’ve agreed to take responsibility if the borrower defaults, so keep them in the loop. By reaching out to the guarantor, you ensure transparency and give them the chance to assist in resolving the issue. They may provide resources that facilitate repayment or provide additional support to the borrower. In any case, it’s a win-win for you.

On-site engagement

In some cases, a face-to-face meeting may be necessary, especially if communication efforts have been unsuccessful or if the borrower is unresponsive. Visiting the borrower at their home or place of work demonstrates a proactive approach to resolving the delinquency. This direct engagement also underscores the seriousness of the situation, as Nigerians are sadly known for not taking loan repayments seriously enough.

Automating repayments

An automatic deduction can be triggered for a loan contract in which a direct debit mandate was initially set up, especially when a borrower is unresponsive or reluctant to pay. Learn more about handling payment collection with direct debit.

Featured read: How direct debit is simplifying payment collection

Leveraging the Global Standing Instruction (GSI)

This tool is particularly helpful in cases where borrowers have multiple accounts or accounts with different banks. By authorizing the GSI, borrowers authorize default loans to be repaid from any of their bank accounts.

Collateral seizure

Seizing collateral may be necessary when all other attempts to recover the loan fail. Collateral is assets pledged by the borrower as security for a loan taken. This involves legally taking possession of these assets to cover the outstanding debt. It’s a last resort for lenders to recoup their losses after exhausting other options. 

A few things you must not do during recovery

While we understand your plight and understand the urgency with which you need to recover your loan, there are a few things you must never resort to during recovery. As a debt collector, you cannot:

Send threatening messages to borrowers and contacts: While it’s important to use borrower’s device data wisely for lending decisions. It has to be done right. Misusing this information negatively impacts the lender, bringing legal trouble and hurting your reputation. Remember, borrower privacy is a must.

Engage in character defamation: Defaming borrowers on social media isn’t smart or effective. It damages your image as a lender, invites legal trouble, and scares off potential borrowers. Stick to legal ways to collect debts.

Make excessive and intrusive calls to borrowers’ contact: Contacting customers’ friends and family should only happen with clear permission. For example, when there’s a signed agreement from a guarantor allowing it. Otherwise, it’s unwise to use such recovery tactics. 

A proactive and instant loan recovery method

While waiting for the absolute worst-case scenario might seem like the most empathetic approach, it often leads to more significant financial hardship for the borrower and yourself.

By taking a can-do stance and initiating recovery efforts at the first signs of delinquency, you can work with borrowers to find solutions, potentially preventing complete default and fostering a better outcome for all.

To get started with smart recovery methods, send us a message at [email protected].