Collection systems can be an important tool for banks in dealing with their bad debts, but there are important points to consider before a bank takes the plunge and spends money on a new system.

Choosing collection software is comparable to hiring a new employee --both are somewhat of a gamble, but there are ways to minimize risk. Preparation for the integration of the new collection system is the key to success. Also, knowing what questions to ask and being aware of potential pitfalls of automation will help in the selection process.

Here are the primary considerations for most banks:

Conduct a needs analysis. Determine how the work and documents flow through the credit department now, and how this process can be improved. Determine the most important problems and try to solve them first. Avoid the temptation to find an all-encompassing solution. It probably doesn't exist.

Involve the right people in the decision process. The collectors who will be working on the system, as well as the collection manager, should evaluate each software option. Usually, collection systems are selected by upper management for upper management. Yet 90 percent of the interfacing with systems is done by collectors and the collection manager. If the hands-on operators do not like the system, the bank should not buy it. Also, involving them in the decision process provides idea ownership. There is likely to be less criticism for a system they helped select than for one imposed upon them.

Look for hidden costs. Establish a budget, and be prepared to identify ancillary costs for a selected system. What will software upgrades cost? Will computers need to be modified? Consider the costs of back-up systems, training expenses, etc.

Choose short-term, cost-justified solutions for both hardware and software. Collection technology is moving too rapidly to commit to long-term solutions. For example, a mini-mainframe computer and corresponding software may be powerful; however, there are extremely high start-up and training costs associated with this option. Also, software enhancements and modifications may be prohibitively costly. A PC-based system that interfaces with the bank's mainframe or a stand-alone PC network might be a more cost-effective option. However, with microcomputers, processor speed is critical and should not be sacrificed to cut costs.

If possible, select the software program before the hardware. Often, software will operate on existing hardware but the automation decision should not be based solely on the desire to reduce hardware costs. Finding a computer that is compatible with a specific software program is much easier than finding a program that addresses the banker's needs and is compatible with existing hardware. It is unwise to attempt to operate state-of-the-art software on obsolete or nonstandard hardware.

The software should operate on hardware that is readily available. With microcomputers, there are reasons why "IBM compatible" often is not. Performance is always different when run on another manufacturer's machine. Bankers should see a demonstration of the selected software working on a hardware platform before acquiring it.

The system should have the ability to expand. With software, that means modular programs that can integrate with other software products such as loan servicing or tracking programs and can operate on a local area network (LAN) or a wide area network (WAN). Look at the other software programs the manufacturer offers. Can complementary support programs be added to the basic software? Ancillary programs should have the same fields as the collection software so that employee retraining is minimal. The move to an automated collection department may instigate some problems at the onset, but consider having to change to yet another system in a couple of years because the software package could not grow with the loan portfolio or integrate new loan products.

The program should be user friendly. "Menu-driven" is possibly the most important feature in collection software, meaning the system tells collectors what to do, step by step, reducing training costs. Look for on-screen help windows. Read the accompanying documentation. Collectors should be able to learn how to use the system and train others in a short period of time.

Look at ancillary features. For example, efficiency and accountability can be increased with auto-dialing. Some software programs include auto-dialing features through computer modems. These features may not be sophisticated enough to shield collectors from busy signals and no answers but will certainly accelerate processing. Other features that will be important are automatic letter generators and management reports.

Flexibility and control. Bankers should be able to tailor specific procedures. For example, perhaps a banker wants to send letters at 15 and 30 days past due before calling a borrower, while another lender may want to send one letter at 10 days prior to phone contact. Also, the collection manager will need productivity data such as the number of calls collectors have placed, the length and results of the calls, and even the number of unanswered calls. Examine all the features of a given software product, determine which are useful and which are superfluous. See how the program performs using loans the bank already offers or intends to offer such as simple interest, adjustable rate, and graduated payment loans.

Train employees in effective collection techniques. Some bankers assume an automated collection system will be a panacea. Unfortunately, if manual controls do not work -- and the reasons are not identified -- a computer will only make mistakes faster.

Manufacturer support. Software is only as good as the manufacturer responsible for supporting it. Look for a strong customer-support commitment via literature, phone training, and upgrades. Phone support is essential; it will be the collection manager's primary source of problem solving. Ask about service hours and understand what type of support is agreed to in a purchase contract. Discuss some of the real problems the vendor has encountered and how they were solved.

INSPECT PRODUCT LITERATURE

Make sure the manufacturer has a history of upgrading software. Examine the frequency and extensiveness of program updates and new releases. Ask the vendor's sales representative to explain features added and why the changes were made.

Taking some time to evaluate needs, and using that information as the criteria for selecting collection software, will help avoid premature obsolescence.

Dynamic Interface Systems Corporation
5959 W. Century Blvd., Suite 1200
Los Angeles, CA 90045 USA
Tel: (310) 568-4567
Fax: (310) 568-0740
email: info@loanledger.com

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