Qualco UK publishes guide on NPL management


Qualco UK publishes guide on NPL management


“The customer experience lies at the heart of collections. Getting it right is essential in today’s debt collection environment.”

In the past creditors may have been reticent about investing in their collection and recovery operations, preferring to focus on new product development and customer acquisition.

Today, the collections environment is recognised as a crucial aspect of the credit process – with the ability to minimise losses and deliver an individual experience that protects the brand and retains desirable customers for the future.

As credit has expanded and lending controls have relaxed since the financial crisis, overdue accounts have again increased. Simultaneously,regulation in this area has changed significantly, in favour of high-quality customer experiences.

The result of this customer focus is that compliance standards and requirements have become more onerous in the last decade. Some debt holders have had to rethink old systems and procedures, finding that they were no longer up to the job of properly managing their debt portfolios.

Poorly-coordinated and inefficient legacy systems, combined with minimal staffing levels and insufficiently experienced people, are becoming a feature of the past, as creditors realise the value of a different approach.

Now there is willingness among creditors to invest in new technology and platforms to ensure that they have the best possible solutions to help them manage their overdue accounts. They are also bringing on board people with strong backgrounds in collections and recoveries. The value of doing so is clear in terms of return on investment (ROI).

These developments often spring from a comprehensive review of their entire strategy. What starts as a conversation about a specific area quickly evolves into more widespread change.

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Why the right data and skills strategy is crucial for governance, compliance, and credit management

Rich, deep data is the bedrock of a successful collection and recovery operation. Businesses must bring together all available internal and external data sets and integrate them in one collection management system.

But while data is vital, it is not everything. Experienced, well-trained and professional staff are needed to connect with customers on the phone.

Their skills are what will eventually enable debts to be settled and provisions to be written back. Their success provides the ROI required of the organisation’s investment in technology and people.

Who is best placed to collect the debt? A thorough collection strategy will determine the balance between in- house collection and use of external agencies, including debt sale and other specialisms. Overall supervision is critical to compliance, success measurement and fair treatment of customers.

This means the brand is protected and enhanced in the eyes of customers and regulators.

The final outcomes are: enhanced customer relations, customer retention, high levels of debt recovery, less bad-debt provisioning, good levels of ROI and strong end-to-end customer management. 


“In many credit businesses, the right strategies for systems and people have not been set.”

When it comes to collecting overdue accounts, the clear, overarching regulatory message is that the customer must be treated fairly and ethically.

Setting out a clear strategy for people and systems that can be executed and monitored effectively is vital.

The Financial Conduct Authority in the UK offers detailed information on how to approach and manage the customer relationship and the rights of the customer. Businesses that provide credit products and facilities must put the customer at their heart.

The customer whose account is overdue is not just an entry in a ledger or a row in a spreadsheet, but an individual. They have particular circumstances, abilities, needs, wants, histories and capabilities.

Some of these characteristics can be distilled into data entries – such as contact details, amounts owing and previous account performance – but that is not the whole story. Sensitivity to individual customers must be demonstrated at all points of communication, from telephone, e-mail and text to mail or personal visits.

In many ways raw data is, or ought to be, the easiest issue to address. Accurate, up-to -date, granular data is a basic requirement and vital to being able to collect overdue accounts.

The expansion of credit that has occurred since the financial crisis means more credit is being granted to consumers by businesses and lenders. Yet, in an era of economic stagnation characterised by austerity measures, consumers’ disposable income is still constrained. Moreover, following the Brexit vote, the outlook for the UK’s future is unclear, which has dealt a blow to consumer confidence.

For all of these reasons, credit portfolios are vulnerable to underperformance and future interest rate rises so there is a need for better credit management, particularly in collections and recoveries. This requires higher levels of investment in systems and people, but in many credit businesses this has not been made.

Consequently, recoveries are in many cases suboptimal. The appropriate treatment of customers still has some way to go before it fully conforms to FCA standards and high levels of credit rehabilitation are achieved


The UK’s Financial Conduct Authority sets out Principles for Businesses (PRIN) in the preamble to its Consumer Credit Sourcebook (CONC). Among them are:

  • Principle 1 – “a firm must conduct its business with integrity”
  • Principle 2 – “a firm must conduct its business with due skill, care and diligence”
  • Principle 3 – “a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”
  • Principle 6 – “a firm must pay due regard to the interests of its customers and treat them fairly”

CONC chapter 7 covers “Arrears, default and recovery (including repossessions)” and includes specific instructions on how credit providers must set “clear, effective and appropriate arrears policies and procedures for dealing with customers whose accounts fall into arrears”.

This includes how to approach and treat their customers, as well as how not to.

According to the Bank of England, there has been a steady increase in consumer credit since the financial crisis. The Money Charity says people in the UK owed £1.548 trillion at the end of July 2017. This is up from £1,489 trillion the previous year – an extra £1,033.06 per UK adult.

Credit providers need to be prepared to cope with the inevitable rise in overdue accounts. The following five steps offer a roadmap for success.


“Incompatible legacy systems and poor basic levels of data on customers reduce recoveries by internal and external recovery teams”

Organisations that offer credit products are facing higher levels of arrears.

According to UK debt charity Stepchange, the average unsecured debt for its clients increased for the first time in eight years in 2016. In the first half of 2017 this trend continued and average unsecured debts rose from £14,251 in 2016 to £14,367. The number falling behind on household bills has also risen.

Profitability is hampered when there is
underinvestment in collection and recovery operations. Debts are provided for and then only written back when recoveries are achieved. Without up-to-date debt management systems and well-trained staff write-offs will burgeon. The potential returns from high quality collections operations more than justify investment.

Yet incompatible legacy systems and poor basic levels of data on customers will reduce success levels for internal and external recovery teams.

Powerful debt collection platform technology can compile rich datasets, gleaned from internal sources and imported from external sources. These can be securely placed at the disposal of both internal and external debt recovery teams, upping the rate of recovery.

Current and evolving regulation such as the UK Financial Conduct Authority’s CONC stipulate in some detail how customers are to be treated by organisations to which they owe money. For this reason and that of their own reputational risk, creditors must ensure their staff are professional, well-trained and closely monitored.

The frequency, accuracy and manner of their communications with customers can be tracked using the debt management system, whether they are internal or external staff.

With such controls in place and the strategic decision made as to whether to gear up the internal collection function or to employ specifically skilled outside agencies, the organisation can achieve a sharp focus. That focus is unique to each organisation, and comprises a variety of measures, including:

  • Rate of net recovery.
  • Level of compliance.
  • ROI in the collection process, including investment in technology and people.
  • Rate of customer rehabilitation and retention.
  • Reduction in provisions and write offs.
Together, these represent the added value available to an organisation that establishes an adequate, timely and suitable debt management function. There is an up-front investment to be made but the return is measurable, controllable and worthwhile in the context of an organisation’s end-to-end credit operation.