Loan collection is one of the most important aspects of lending. A World Bank report highlights that non-performing loans (NPLs) account for nearly 10% of total loans in some economies, placing significant financial strain on lenders.

Furthermore, recovery rates vary widely depending on the methods used. According to the European Investment Bank (EIB), recovery rates for private contracts average 72.2%, while public contracts see a higher recovery rate of 85.9%. This reinforces the fact that loan recovery remains the biggest challenges in the lending industry.

So, the big question remains: how can lenders prevent their loans from turning into defaults and eventually becoming non-performing loans (NPLs)?

The Solution: Collect Payments Before Default Occurs

The good news is that with the right strategies and tools, you can efficiently collect loan repayments before defaults happen using Configure. Configure, a robust core lending platformprovides a suite of powerful collection tools that helps you get your money back before it turns into bad debt.

In this article, we’ll explore three proven methods and best practices you need to collect loans from borrowers before they default using Configure.

3 Instant Loan Collection Methods to Prevent Defaults

Direct Debit

What is Direct Debit?

Direct Debit is an automated payment collection method that allows you to collect scheduled repayments directly from your borrowers’ bank accounts. Configure offers three Direct Debit methods, making it a versatile solution for lenders. This approach also minimizes the risk of missed payments and reduces the administrative burden on your team.

Why Use Direct Debit?

• Automation: Payments are automatically deducted on due dates, reducing the chance of defaults.
• Consistency: It ensures a steady cash flow by collecting payments as scheduled.
• Efficiency: Reduces manual intervention, allowing your team to focus on other critical tasks.
• Ideal for Recurring Payments: Perfect for borrowers who prefer structured repayment plans.

The direct debit loan collection method is suitable for lenders anywhere in the world. One of the biggest advantages of activating  direct debit mandates on Configure as a lender in Nigeria is that suppose a borrower fails to meet their repayment schedule. In that case, the system will automatically attempt to collect the overdue amount from all bank accounts linked to the borrower’s BVN—without requiring manual follow-ups. This eliminates the need for manual follow-ups, saving time and improving cash flow. Additionally, this method ensures that payments are collected even if the borrower changes their bank account.

Wallet

The wallet collection method allows borrowers to repay loans directly from their wallet balance. If borrowers already have funds in their wallets, repayments happen instantly and seamlessly. For example, a borrower with a $1,000 wallet balance can instantly repay a $500 loan without needing to input card details or visit a bank. This speeds up the recovery process and reduces friction. Additionally, the wallet is set up so that borrowers can only deposit funds into their wallets but cannot make withdrawals.

Why Use the Wallet Loan Collection Method?

• Convenience: Borrowers can repay loans with just a few clicks and you can proceed with loan collection without waiting for bank transfers.
• Faster Repayments: Reduces the time lag between payment initiation and completion.
• Improved Borrower Experience: It offers a seamless repayment process and encourages timely payments.

Card Debit

What is a Card Debit?

Card Debit is a payment method that allows you to recover loans directly from your borrowers’ debit or credit cards. Configure’s Card Debit loan collection method is perfect for one-time or recurring payments, ensuring instant recovery of funds.

Why Use Card Debit?

• Instant Payments: Funds are recovered in real-time, reducing delays.
• High Success Rates: Card payments have a success rate of over 85%.
• Flexibility: Works for both one-time and recurring payments.

You should consider this loan collection method because, with it, a borrower or defaulter who missed a payment can be prompted to repay immediately using their card. With Configure’s Card Debit method, you can recover the loans amount in minutes, ensuring your cash flow remains uninterrupted.

Best Practices for Loan Collection on Configure

1. Communicate Clearly: Inform borrowers about repayment options and due dates.
2. Use a Combination of Methods: Leverage Direct Debit, Wallet, and Card Debit for maximum coverage. Configure allows you to set up both primary and secondary collection methods. If the primary method fails, the secondary method automatically kicks in to ensure successful collection.
3. Monitor Performance: Use Configure’s analytics tools to track collection success rates, identify trends, and optimize your strategy. 
4. Stay Compliant: Ensure that all collection practices adhere to local regulations and ethical standards to maintain borrower trust and avoid legal risks.

Conclusion

Loan collection doesn’t have to be a struggle. With Configure, you have access to three highly effective collection methods that can help you collect payments before they turn into defaults and ultimately become non-performing loans (NPLs). These methods are available to lenders both locally and internationally.

Start using Configure today and experience the difference. You’ll not only recover loans more easily but also build a more sustainable lending business.