Why collections matter
Collections are a vital part of the peer-to-peer lending ecosystem. They offer a final safety net to investors once all other avenues for repayment have been exhausted. However, for many lenders collections will only become a consideration at the very end of the loan term. By contrast, Kuflink’s collections process begins from the moment that a new loan is agreed.
The platform follows an eight-step process to ensure that recovery action can be avoided.
This approach is clearly working for the P2P lender. During the first four months of 2024, approximately £4.5m was redeemed per month across 60 loans due to Kuflink’s current loan management processes. And despite ongoing macroeconomic volatility, Kuflink has not yet seen an increase in recovery activity.
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“We update our investors as soon as we are made aware a loan will not repay on time and thereafter, we provide updates at least on a monthly basis,” says Hiran Patel, chief risk officer at Kuflink.
“If we were aware that our investors may incur a loss, we would let them know as soon as possible but, to date, our investors have not had to incur any losses.”
By 31 March 2024, two per cent of Kuflink’s loans were overdue by less then 30 days, and 12 per cent were overdue by less than 180 days. 15 per cent of the platforms’ loans were with a recovery agent.
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“If repayment isn’t achieved by the expiry date, the collections process entails negotiating repayment plans and, if necessary, legal action,” explains Patel.
“Kuflink has a dedicated team for collections and loan management to minimise investor losses.”
Nattalie Weeks, head of portfolio at Kuflink, says that building relationships with borrowers has proven beneficial for Kuflink over the past few years and allows the platform to anticipate payment delays and work with the borrower to achieve the best outcome. This is particularly important during periods of economic volatility.
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“During economic uncertainty like recessions, collections processes may intensify to address higher default rates,” explains Weeks.
“Kuflink might implement stricter lending criteria such as reducing our loan to values, increase borrower communication to assess financial situations, and expedite collections to minimise losses.”
Patel and Weeks would like to see more borrower screening in the P2P landscape, as well as more proactive collections strategies. Early payment issue detection technology, and increased support for financially struggling borrowers could soon become the norm, especially if there is a rise in defaults across the industry this year. Until then, Kuflink will continue doing what it does best, and prioritise a rigorous collections process which benefits both borrowers and investors.
Kuflink’s eight-step collections process
Step one: Each approved borrower receives a welcome letter outlining any associated loan conditions, which are imposed by the underwriting team to be completed within certain timeframes once the loan went live.
Step two: Kuflink ensures that communication with borrowers is ongoing until these conditions are met.
Step three: At the loan’s midpoint, a reminder is sent to borrowers to address loan conditions and discuss potential exit strategies.
Step four: 12 weeks before the loan’s expiry date, borrowers are contacted to ensure steps have been taken to achieve repayment of the loan, such as refinancing or the sale of the property.
Step five: Eight weeks before expiry, there is a follow-up to ensure borrowers are progressing with repayment plans.
Step six: Six weeks before the expiry of the loan term, Kuflink’s solicitor is instructed and contacts the borrower with redemption instructions.
Step seven: Four weeks before expiry, there is another check-in to ensure repayment plans are on track.
Step eight: Two weeks before expiry, further contact is made to confirm progress in the exit strategy, such as evidence of refinancing.