Bankers, lenders and lessors are in the relationship business. Their careers and businesses are built on them. As a result, you would expect banks and other lenders and lessors to be great at building strong, mutually rewarding relationships.

But what about relationships that go south? Too often, when unforeseen circumstances call for extraordinary measures to collect on noncurrent loans or to repossess collateral, lenders lack the experience, know-how and finesse to find the optimal outcome – for them and for their customers.

In our firm’s 24 years of helping lenders and lessors deal with relationships that have gone sour, one particular scenario plays out time and time again. The example below describes an all-too-common set of circumstances and the conditions that could lead to portfolio outcomes that are favorable or not.

The scenario:

• One lender, whose portfolio was beginning to experience an increase in default rates, became aware that it had miscalculated the number of loans that could be at risk of default, and that many of those defaults were likely to require repossession.
• The company’s internal collections team employed primarily junior personnel. These employees had no personal investment in the relationships and little to no experience in collections. Further, the company lacked the resources to assist collections reps with this highly sensitive process.
• Given the size and scope of the challenge, the company has a choice to make: Handle the upcoming wave of defaults on their own or turn to a third-party specialist with a track record of high performance bringing challenging loan balances to successful resolution; all while working to preserve the relationship and the company’s brand reputation.
• Complicating the issue as we approach 2023 is that many lenders and lessors haven’t had to deal with a surge in defaults for years. The personnel who will be tasked with collecting may not have ever faced the phenomenon.
• The other choice is to outsource to an agency. This course of action presents its own challenges. The lender needs to know that the agency’s representatives will approach its borrowers, not as collectors but as knowledgeable and resourceful partners – people prepared to work with borrowers to creatively develop a means of paying in order to bring their account current.

When lenders or lessors aren’t completely confident in their capacity to bring troubled loans current, choosing an agency can be a game changer. Depending on the circumstances, asset recoveries can be reduced by up to 70 percent or more, with nearly half of those accounts brought to successful resolution. For lenders who are concerned about preserving relationships, outsourcing their at-risk balances can be the best solution.