At Funding Circle our aim is for you to earn stable returns by lending directly to businesses. With any type of lending, your capital is at risk and it’s normal for some businesses to be unable to repay their loans. We call this bad debt, and we expect a certain percentage of it to occur each year.
When a business falls behind with their repayments, our Collections and Recoveries team will work closely with them to achieve the best possible outcome for investors. We spoke with Andrew Jackson, who heads up the team, to find out more about how Collections and Recoveries have evolved over the past few years.
Andrew joined Funding Circle in 2013
Hi Andrew, thanks for speaking with us today. A lot has changed since we brought Collections and Recoveries in-house in early 2014. What does the team look like now?
In the beginning it was just a part-time colleague and myself handling everything. Now we have more than 20 people in five specialist teams:
- The Loan Servicing team deals with borrowers who are on time with their repayments, but may have queries or requests such as asking for statements of account or settlement figures.
- The Business Advisory team carries out portfolio monitoring on the whole of the loan book. They look for warning signs and work with borrowers to find ways to keep payments on time.
- The Collections team deals with missed payments. They know as soon as a direct debit is cancelled, or 3 days before the due date if a direct debit bounces.
- The Recoveries team deals with any loans where the borrower or guarantor has entered a formal insolvency process, or that are defaulted.
- Last but by no means least, the in-house Recoveries Litigation team carries out our legal work, with the help of an external panel when required. Bringing litigation into my team in 2016 enabled us to work faster and cheaper in commencing bankruptcy proceedings, obtaining security and commencing legal action.
We also work closely with external tracing agents, private investigators, surveyors, insolvency practitioners, turnaround experts and lawyers.
How has the approach of the team changed since 2014?
In the early days we were testing out new approaches and ideas, which set us apart from the usual strategies taken by banks. We found our approach seemed to work much better than industry expectations, and resulted in lots of positive feedback as well as recovering more money for investors.
You mentioned your strategies are working? What results have they had?
We’ve seen exceptional performance over the past few years. Moody’s (the ratings agency) have published reports suggesting that we should get 30% lifetime recovery on our asset class*. However, we have seen significantly higher results, and we predict that will continue. Over the last few years, investors have consistently earned returns on average between 6-7% per year after fees and bad debt.
The difference with Funding Circle is that we don’t give up on borrowers simply because they are going through a rough patch. Entrepreneurs are a tenacious bunch. They learn from their mistakes, get back on their feet, and start new businesses – and it is from those new ventures where we see a significant portion of our recoveries. I think businesses understand this.
When we explain our policies to them they often agree that they are fair – even those who we believe are not being as cooperative as they could be. When we explain to them why we have reached that conclusion they tend to see things from our perspective, and then work alongside us in a much more open and honest way.
Thanks Andrew, we appreciate you taking the time to speak with us!
You can learn more about how the Collections and Recoveries process works at Funding Circle with the blog posts below:
Bad debt, defaults and why not to be afraid of them
How our collections process works (part 1)
How our collections process works (part 2)
How long does it take to receive recoveries?
Alternatively, if you have any questions please feel free to get in touch.
The Funding Circle team
*Frank J. Faboozi, Handbook of Finance, Volume 1: Financial Markets and Instruments: v. 1, (J. Wiley & Sons, 2008)