Advice General

The Information Collection Challenge

Posted on March 9, 2018 Published by

We know financial institutions that genuinely fear this time of year. Business financial statements, corporate tax returns, and personal tax returns will be available shortly for the most recent year-end. Any experienced banker can tell you what’s next: the push to collect updated financial information. Financial statements provide documentation to support credit decisions and risk ratings. Crunching the numbers, updating analysis, and assigning risk ratings is hard enough. Absent a well-organized and proactive effort to collect the information, the overall process can be outright daunting.

In our normal course of business, we see organizations with the best of intentions struggle with this effort year after year. We also see organizations perform this function very well. The more proactive your organization is, the more control and efficiency you have in responding to the needs of your clients and in your risk management process. That alone gives you a competitive advantage.

As you approach this key period and lay the foundation for a successful year, here are a few insights from our years of experience

1) Assign a team leader who will act as the point person for this annual collection effort. This person could be anyone in the organization, but our experience tells us that he or she needs the full support of the management team and a level of internal authority. Essentially, individuals responsible for the collection of the information need to understand that this person carries a heavy stick. If someone is not holding up their end of the deal, this person has the authority to do something about it.

2) Get an accurate picture of what information you don’t have. Understanding what you don’t have allows you to accurately and confidently request information from your borrowers or guarantors. A word of caution: Don’t let perfection prevent action. Our experience tells us that this list is rarely perfect. The good news is that due to the time of year, it’s a safe assumption that you need to collect year-end financial statements and tax returns from everyone.

3) Get a reminder out to your clients. This is a perfect time to call or email your borrowers and guarantors. I prefer calling rather than emailing as it provides another touchpoint to check in and see what their plans are for the year. Not only can you remind them that they’ll need to provide updated financial information when it’s available, but you’ll have an opportunity to gain a better understanding of your borrower’s plans for the coming year. Who knows, you might end up with a new loan opportunity.

4) Provide an authorization to your guarantor or borrower that once signed, allows you to directly contact their accountant for the information. This doesn’t always work, but when it does, it can dramatically improve the information collection process.

5) Prioritize. All financial institutions have loan relationships which should be considered a higher risk priority than others. You can prioritize by relationship size, risk rating or industry, among others. As an example, financial statements from agricultural borrowers should be considered a priority based on where we are in the agricultural cycle. Whereas, financial statements for stable investment real estate properties might not be as critical. Get to the priorities first.

6) Follow-up. After the initial reminder or contact, follow up after the tax return filing deadline. Stay top of mind with your borrowers and guarantors.

7) Discuss this internal effort regularly at sales meetings and credit committee meetings. Teams should collaborate on challenges or successes they’ve had.

8) Make it fun. As my daughter would say, “Wait, what?” I realize it’s a challenge to make this type of task fun, but organizations have had some fun with it. Hand out prizes at the end of each week to the people who have been most successful in collecting information. Have a pizza party for the team’s hard work. Dedicate an hour each week for the entire team to focus on this specific task. Whatever it is, this can be a team-building experience.

We realize this can be a big effort, but with a well-established and organized effort, you can make the rest of the year much easier, freeing up time to serve your clients.

Peter Nugent is Director and founder of Enlighten Financial, a specialized consulting firm that focuses on providing loan review and risk management services to community banks and credit unions. Peter guides the company’s service offerings, which include in-depth loan reviews, commercial and personal underwriting/analysis, internal process improvement and workout services. To talk to Peter directly, please call: (920) 354-6797.

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“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors.”
— Bill Beardsley, President, Michigan Business Connection
“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors."
— Bill Beardsley, President, Michigan Business Connection