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Repairing Customer Relationships During Collateral Recovery

Date: Jul 09, 2013 @ 07:00 AM
Filed Under: Asset Management

When I came to work at ACS in 2007, I had to be reprogrammed a bit. Hired to work on a couple of accounting technology projects, I was going through my normal process of understanding the business when I had to adjust my way of thinking. As a CPA, I had been involved and become familiar with many business models through the years, but this one had a unique twist that was incongruent with my preconceived ideas about the collection industry. I quickly learned that there is a different approach that is far more effective for recovering collateral that benefits both the customer, which is the lender; and the debtor, which is the customer of the lender.

As the team was explaining the process to me, they kept making references to customers, which in my world is the person that gets the invoice. “No, that’s the client” they would say, “the customer is the equipment owner and we try to help them.” You may have noticed what I eventually came to realize: In those conversations the word debtor was never used.

“Why do you keep calling the equipment owner the customer? The person that borrowed the money and owes the lender is the debtor right?", I asked. The answer came back, “Well, that’s technically true, but that person is the customer of our client. The customer is why we exist.”

The concept that stuck out to me during this initial process was that there was this focus on “curing accounts”, not on picking up equipment. Sure, repossession is always an option, and we do a lot of it, but the actual threat of that is what makes a curing accounts approach so effective. 

Repairing Relationships

The customer with a commercial loan is a revenue generator for a lending institution. Fewer customers mean less revenue. Dealing with a delinquent loan by picking up equipment turns off all revenue streams for the loan. It also causes all kinds of costs to be incurred, which are charged to the account, but often only cause the deficiency balance to be higher and end up being written off. Beyond the recovery fee, there can be repairs, inspections, transportation and a myriad of other items.

The first goal should be to repair the relationship between the client and the customer. This statement is a core part of the process we employ and in some ways makes the process a counseling session. Repairing the relationship preserves the revenue stream and eliminates liquidation costs and deficiencies.

It’s also a bit about respect. People do some disrespectful things when under pressure, and customers that are under intense financial pressure can do and say things that they will come to regret. Working to respectfully help them understand that the collection company feels their pain, is trying to help them gain control of their finances, and put them in position to use the lender again when their situation improves, is good for them and maintains a potential future customer for the lender.

This process also can give a customer an outlet to be heard. Many customers will not cooperate simply because they view the lender as a big machine that doesn’t care about their situation. The psychological need to be validated and have their position heard can be accommodated as a third party. By listening to their problems and understanding their point of view, they typically become much more cooperative and more willing to cure their delinquency.

An example of this occurred during the height of the recession in 2009 when many lenders started experiencing problems with long-time customers that had never missed a payment. One example in particular sticks out because it was a gentleman that just didn’t know what to do and was avoiding the lender, while also trying to hide his equipment; a situation that is a common occurrence. After tracking him down, Joe, our representative, spent the first phone conversation talking to him about his problems and trying to understand his business. Instead of immediately using the information about where he was storing his equipment to repossess it, Joe worked to build some trust with the customer and let him know we wanted to help his business.

Learning that the customer had contracts and was working, Joe was able to help the customer figure out that he needed (and could afford) four of the seven machines owned. Instead of struggling to pay for all seven, he brokered a deal that allowed the customer to turn in three, come current on the entire loan through a payment arrangement, and then restructure the remaining loan balance on the other four so that the cash flow of the business could easily afford to maintain the account. It was the listening and relationship building with the idea of helping, which allowed this solution to become productive.

In another case, our representative did some research and was able to help a customer register to bid on government contracts while asking the lender to allow us to create a 90-day payment arrangement for the customer to become current. In that time the customer was able to win several contracts, get his crews back to work and eliminate his delinquency.

In both of these situations, the customer was able to recover and remain current on their accounts. The traditional approach would have shut down both companies, left the customers with perhaps sizeable deficiencies, and many people out of work. By getting into a problem-solving mode and being creative, the end-goal of getting the lender whole and keeping the customer in business was achieved.

Bigger Picture

There is an effect on the larger economy at play here too. Commercial loans are an important part of the U.S. economic engine. These loans fund equipment that generates revenue, which is then used to pay wages, which people use to make purchases. Simply shutting down a loan and repossessing equipment might at first glance be the best option to protect a lender’s portfolio and loss reserves, but it can provide a ripple of damage through the economy as construction contracts go uncompleted and jobs are eliminated.

A better approach is to try and create a win-win scenario where the borrower stays in their equipment fulfilling their contracts and keeping people working, and again, the lender avoids having to deal with liquidating equipment and collecting deficiency balances.

Although the philosophy has always existed, it has evolved into specific programs in this post-recession period where delinquencies have remained extremely low. This started to become very important during the recession as our clients began having problems with customers that had been doing business with them for 20 years or more without missing a payment. We needed to find a way to help good customers, and good people, work through their problems and stay in business.

The Program

We have found the most effective programs are where we work as an extension of the lender to create a solution that keeps the contractor in their equipment, and gets the lender their money at no cost. These programs require getting involved in the process much sooner than traditionally would be the case. Remember that many collection managers view the decision to send an account to collection as a last resort; however, the clients that utilize such a program as a first option typically experience far superior results.

When working in the field as a repossession agent, there is also more leverage because the agent has the option of picking up equipment. When a bank collector makes a threat on the phone to repossess the equipment, the customer knows there is a good possibility that is an empty threat, or at a minimum will take some time to make happen, so the sense of urgency can be lost. When an associate that has the power to pick up the machine within an hour is making that call, the level of urgency is much higher and the likelihood of a payment being made that day goes up significantly.

Another key attribute is that we try to structure the program so that there is no cost to the lender since collection fees are collected along with the delinquency. Ultimately the goal is to collect all monies due the lender, including incidentals like late charges and collection fees, and the next month’s charges where appropriate, and pass the entire amount due through to the lender. No invoices to process, no checks to write, no equipment to liquidate. This is not possible for many lenders because they have risk management policies that do not allow third-party collection companies to collect cash on their behalf. However, this can be accommodated by arranging direct payments in such cases.


When a commercial loan is delinquent, the last thing the lender wants to deal with is acquiring and liquidating the equipment to get their money. As a collection manager, you want the money, not the headaches of holding and liquidating equipment. By looking at the customer as a relationship, and by finding points in that relationship that make it not just easier, but prudent for the customer to cure their delinquency, it is possible to create highly-effective programs that get the money, which leaves the equipment in the hands of someone that can keep it working.

By working as an extension of the lender’s collection staff rather than as a last resort, creating a solution, tailored to benefit both lender and borrower, can prove to be an effective course of action.

Gregory K. Meyer, CPA
CFO/CIO | Alternative Collection Solutions, Inc.
Meyer holds a bachelor's degree in economics from the University of Buffalo and an MBA in accounting from Canisius College. He has 25 years of experience in auditing, accounting, tax, operations and IT management.

Founded in 1997, Alternative Collection Solutions, Inc. is a commercial collection and colateral recovery company that serves most of the largest captive finance companies and commercial banks throughout North America. It is a leader in developing innovative programs to assist lenders in managing delinquencies in their portfolios.

Readers may contact Greg Meyer at
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