bank credit management
Question: Differentiate between the collection function and recovery function of a financial institution.
The collection function collects payments from accounts which are delinquent, that is those who make payments later than their contractual due date. This is happened when the loan not yet turns bad; the problem is not so serious.
The recovery function collects money still owed on accounts after the financial institution has classified the account as non-performing or has written off the account as a loss. This is happened when the loan turning bad; and the problem is considered very serious.
Depends on the marks and explain both collection process and recovery process
The functions of collection and recovery also help the financial institution evaluate the effectiveness of its lending policies. Therefore, these functions help preserve the quality of the consumer loan portfolio and avoid unnecessary write-offs or bad debts.
(A) COLLECTION PROCESS
The objectives of a debt collection process involve:
First, Efficiency in efforts made to bring loans back to a regular or current status. This means to make the borrower to pay on time.
Second, maintaining delinquencies within acceptable limits. This is to limit the bank losses and to avoid the problem becoming even worst. For example, maintaining the delinquencies within 2% or 3% depends on the financial institutions itself. Or for example, the customer now delay payment for 2 weeks, bank should make sure them won’t delay for 3 weeks or even a month.
Third, is to manage collection costs efficiently. This means that to minimize the cost in the collection process. The cost involves salary of the bank officer; cost of paper works for example letter send to customer and so on.
The collection function must be smoothly operated with the following: (how bank help loan officer in the collection process)
First, a highly automated system for detecting and tackling delinquencies in its early stages. That is the
The collection function collects payments from accounts which are delinquent, that is those who make payments later than their contractual due date. This is happened when the loan not yet turns bad; the problem is not so serious.
The recovery function collects money still owed on accounts after the financial institution has classified the account as non-performing or has written off the account as a loss. This is happened when the loan turning bad; and the problem is considered very serious.
Depends on the marks and explain both collection process and recovery process
The functions of collection and recovery also help the financial institution evaluate the effectiveness of its lending policies. Therefore, these functions help preserve the quality of the consumer loan portfolio and avoid unnecessary write-offs or bad debts.
(A) COLLECTION PROCESS
The objectives of a debt collection process involve:
First, Efficiency in efforts made to bring loans back to a regular or current status. This means to make the borrower to pay on time.
Second, maintaining delinquencies within acceptable limits. This is to limit the bank losses and to avoid the problem becoming even worst. For example, maintaining the delinquencies within 2% or 3% depends on the financial institutions itself. Or for example, the customer now delay payment for 2 weeks, bank should make sure them won’t delay for 3 weeks or even a month.
Third, is to manage collection costs efficiently. This means that to minimize the cost in the collection process. The cost involves salary of the bank officer; cost of paper works for example letter send to customer and so on.
The collection function must be smoothly operated with the following: (how bank help loan officer in the collection process)
First, a highly automated system for detecting and tackling delinquencies in its early stages. That is the