How to Identify Early Risk in Credit

Risk Identifier

In a post-recession economy, managing collections in a timely manner can be a tricky business; especially because of the impact this particular task has on working capital.

In this environment, having a set of checks and balances in place that can identify early credit risks from customers is more than recommended. It’s actually crucial for ensuring the financial health of an organization by mitigating losses.

Additionally, early risk identifiers can also facilitate early intervention along with the necessary corrective action. Since false signals are possible, risk identifiers are generally integrated with credit risk management as well, the process for which weighs in several variables. But that’s a different story.

Risk Identifying Signals

The need for early risk identification is clearly beyond debate. However, in nascent stages, organizations often wonder which markers to watch out for; or which identifiers require more attention than others.

The mapping of early risk identifiers focuses primarily on individual borrower behaviours, and it’s possible your client servicing teams have already begun to notice these signs. If you already have a systematic addressal process in place, chances are you’re in good shape.

In case you don’t have a process in place, this first set of identifiers will help you establish a launchpad for the right conversations to gather your resources.

Key Early Risk Identifiers

  1. Credentials of Your Borrower
    Ideally speaking, the approval or pre-approval stage can set the scene for future risk or liability. This can be true of loan sanction or premium renewal scenarios.A close review of credit history and existing balance sheets can offer clear insights into an individual’s reliability. But in the grand scheme of plentiful paperwork, these signs are fairly easy to miss.
  2. Early Payment Defaults
    A payment default or a bounced cheque early on in the repayment cycle is usually not a good sign. How aggressively the situation is tackled may be a part of the process that gets fine-tuned over time, but this signal shouldn’t be ignored.
  3. Customer Response
    If your customers are ignoring calls, being evasive about their availability, or in extreme cases, they resort to being verbally aggressive with your representatives, you may have a potential red flag on your hands.On the other hand, you may even see repeated requests for payment extensions in quick succession.You may need to consider alternative forms of communication – an email or a targeted ad, for instance – to gain their attention and to make them more responsive.

One of the major reasons that underscores the need for early risk identifiers is that organizations cannot fully rely on human instinct and experience alone. By the same token, they can’t fully rely on technology alone either; we’ve seen several instances where false identifiers showed up on flagged cases.

Timely intervention and a well-adjusted course of action could mean the difference between on-track payments or a non-performing portfolio.

Therefore, you must enable your servicing teams to respond effectively to early warning signs, and this is a domain that  where ATS has garnered significant human experience and technological skill.

We’ve worked with numerous clients over the years to help them manage their credit risks successfully. And we can develop tailor-made solutions for you as well.

If you’re interested in learning more about our Risk Management services, please contact us and our Sales team will get back to you.  

 

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