Bad-Debt Software Beefed Up to Estimate Chance of Recovery
Stockholder Systems Inc. has announced the addition of credit-risk scoring capabilities to its line of loan recovery software.
Several consulting firms specializing in credit scoring models have announced software development plans in this area.
But Stockholders Systems, based in Norcross, Ga., is believed to among the first software companies with debt collection systems already on the market to move into risk scoring for loan recovery.
A Statistical Tool
To launch the initiative, Stockholder Systems hired four consultants from Credit Partners, a risk-management consulting firm. Included is Len McCahill, a former principal at Credit Partners, who was appointed vice president of Stockholder Systems' recovery products division.
Credit scoring has been used as a statistical tool in the loan-granting process. Models are built from credit application data, credit bureau files and other information. By weighing the various data elements, banks are able to more accurately predict payment performance.
Stockholder Systems, though, uses scoring after an account has gone bad - to determine how a bank should deal with the account. "In the past, most recovery work was based on personal judgment," Mr. McCahill said. "Scoring determines what accounts have a high probability of being recoverable."
According to Gary Giddings, vice president at NBD Bank in Detroit, the marriage of scoring techniques to credit collections is good news for banks beset by bad consumer debt. "For years, banks have relied on predictive scoring," he said. "If we can now determine what chargeoffs can be recovered, that will be of tremendous use to institutions, which are being forced to pay closer attention to collections."
The Stockholder System's new scoring function is an extension of the company's existing Recovery Management System (RMS).
Designed to run on midrange and mainframe computers from International Business Machines Corp., RMS facilitates the recovery of charged-off debts by automatically tracking each account through its final disposition.
Mr. McCahill said a large credit card operation at a Florida bank he declined to identify was installing the scoring system, which will be operational by the end of the year. Ms. Sullivan is a freelance writer based in New York.