The Data Analytics Blog

Our news and views relating to Data Analytics, Big Data, Machine Learning, and the world of Credit.

All Posts

Hostage Negotiation Tips And Techniques For Effective Debt Collection

May 31, 2017 at 1:37 PM

Negotiation is a common activity in our daily lives. It’s human nature to try to influence others to achieve a better or advantageous outcome for ourselves. It’s ultimately an exchange of value. And if done well, it can leave both sides feeling like they’ve won.

In my practice area of Collections & Recovery Solutions, negotiation is a critical tactic used in every engagement with a debtor. In fact, it’s so critical and core to the success of a Collections organisation that it merits a discussion with the ultimate negotiator to see if there are tips and techniques that can be learned and applied in Collections.

With this objective in mind, I contacted a former hostage negotiator from the South African Police Service (SAPS) and had the pleasure of spending the morning with him a few weeks ago. In this blog post, I’ll outline some of the key techniques learned in negotiation from a hostage negotiator and how they can be applied to achieve significant lift in your debt collection outcomes.

Create an effective structure for Strategy Design and Execution

In a hostage negotiation, the structure is clearly divided into two parts.

1. Strategy Design

Gathering and analysing of information (data) received in order to determine the solution (strategy) with the best possible outcome. Recording of all communication and actions (Scribe) and informing stakeholders (media) of the progress and outcomes.

In a hostage negotiation, you typically have a Primary Negotiator who engages with the captor and a Secondary Negotiator who monitors the negotiations and gives feedback to the primary negotiator regarding the use of skills, inflection, tempo, trigger words, and interpretation of messages given by the captor. The Secondary Negotiator further feeds the Primary Negotiator with information (data) to assist and drive the strategic intent.

2. Strategy Execution

In terms of strategy, the First Negotiator is responsible for execution of the following:

  • establishing contact with the hostage-taker and engaging in the negotiations;
  • putting the hostage-taker at ease and thereby making resolution of the problem imminent;
  • maintaining open communication;
  • eliciting useful information, and
  • achieving safe surrender of the hostage-taker with dignity.

Hostage Negotiation structure is made up of two parts - Command Post and Negotiation team

Looking at typical hostage negotiation structure, it is quite clear that there are many similarities between it and a Collections Call Centre structure, especially taking into consideration the importance of data and the analysis or interpretation of data.

Visit our solutions page for Debt Collections & Recoveries Solutions.

In summary, both hostage negotiations and debt collection negotiations require a clear structure where data is gathered, interpreted and analytically utilised to drive the strategy.

In both types of negotiation, the primary negotiator or collection agent, executes the strategy of the team or organisation, and therefore fulfils the role as primary contact with the hostage-taker or debtor.

Key Principles and Techniques for a successful negotiation

We’ve looked at structure. Now let’s look at the principles employed in hostage negotiations and consider the similarities between these and those in debt collection. The one main common objective between both types of negotiations is to build trust and rapport. These are key in the ability to influence the outcome. Many of the principles and techniques below support this objective.

  • Seek to understand. Actively listen and ask open ended questions. In other words, effectively assimilate and understand the person's situation and perspective, listen to what is actually being said and interpret the various underlying meanings and messages.
  • Be conscious of both verbal and non-verbal language. 7% of what we communicate is in what we actually say. The rest is communicated in tone and body language. The majority of the time, you will be negotiating via a telephone so you don't have the advantage of being able to witness body language. On the phone, listen for tone and inflection, and use them to assess the person's mood, intentions and state-of-mind. Use this to distinguish between content and feeling, i.e. understand the difference between what is said verbally and what message is really being given.
  • Show them that you are listening. Repeat what you've heard them say to summarise and ensure you understand their situation. Use encouragers such as "ok", "right", and "uh-huh" while they are speaking to let them know you're listening - this is especially important on the phone.
  • Show empathy and respect. Show understanding of the thoughts, feelings and motives of the person. This can be achieved in the following ways: allow (encourage) the hostage-taker to ventilate; be honest, upfront and sincere; and avoid a critical tone.
  • Work together on a solution. Make them feel like you are on their side and there to help by building a "we-them" relationship. Orient the conversation to problem solving, but avoid telling them how to solve his/her problems; and divert any negative train of thought.

Follow these tips and techniques, but beware of the potential for a "reverse" Stockholm Syndrome in call centres - if an agent begins to feel too much compassion for a debtor it could diminish their ability to collect.

In Summary...

Listen to understand and show empathy and respect to the individual and you will build the trust and rapport to achieve the outcome you desire. I urge you to watch this short TEDx session by police hostage negotiator, Scott Tillema, who shares his experience and the secrets to successful hostage negotiation.

In my next post we'll look at the Call Centre Agent and their similarities with the Primary Hostage Negotiator, learn how to utilise your agents’ “brain dominance”, the danger of "reverse" Stockholm Syndrome for Collection Agents and how to mitigate these symptoms, as well as verbal hostage negotiation tactics that can be utilised in collections negotiations.

Find out about our on-demand Debt Collection training courses offered by our Credit Academy or visit our home page for an an extensive range of analytics tools to improve effectiveness of your call centre and debt collection teams.

Increase your collection and recovery yields 

Image credit: Columbia Pictures film "The Taking of Pelham 123"

Perry de Jager
Perry de Jager
Perry has been involved in Collections and Recoveries for the past 12 years, spending time in different market segments ranging from law firms to investment companies. At Principa, Perry has worked on extended projects within both South Africa and the Middle East with some of the largest financial organisation, providing on-site consulting within the collections and recoveries space covering strategy, process, people and technology.

Latest Posts

The 7 types of credit risk in SME lending

  It is common knowledge in the industry that the credit risk assessment of a consumer applying for credit is far less complex than that of a business that is applying for credit. Why is this the case? Simply put, consumers are usually very similar in their requirements and risks (homogenous) whilst businesses have far more varying risk elements (heterogenous). In this blog we will look at all the different risk elements within a business (here SME) credit application. These are: Risk of proprietors Risk of business Reason for loan Financial ratios Size of loan Risk industry Risk of region Before we delve into this list, it is worth noting that all of these factors need to be deployable as assessment tools within your originations system so it is key that you ensure your system can manage them. If you are on the look out for a loans origination system, then look no further than Principa’s AppSmart. If you are looking for a decision engine to manage your scorecards, policy rules and terms of business then take a look at our DecisionSmart business rules engine. AppSmart and DecisionSmart are part of Principa’s FinSmart Universe allowing for effective credit management across the customer life-cycle.   The different risk elements within a business credit application 1) Risk of proprietors For smaller organisations the risk of the business is inextricably linked to the financial well-being of the proprietors. How small is small? The rule of thumb is companies with up to two to three proprietors should have their proprietors assessed for risk too. This fits in with the SME segment. What data should be looked at? Generally in countries with mature credit bureaux, credit data is looked at including the score (there is normally a score cut-off) and then negative information such as the existence of judgements or defaults; these are typically used within policy rules. Those businesses with proprietors with excessive numbers of “negatives” may be disqualified from the loan application. Some credit bureaux offer a score of an individual based on the performance of all the businesses with which they are associated. This can also be useful in the credit risk assessment process. Another innovation being adopted internationally is the use of psychometrics in credit evaluation of the proprietors. To find out more about adopting credit scoring, read our blog on how to adopt credit scoring.   2) Risk of business The risk of the business should be managed through both scores and policy rules. Lenders will look at information such as the age of company, the experience of directors and the size of company etc. within a score. Alternatively, many lenders utilise the business score offered by credit bureaux. These scores are typically not as strong as consumer scores as the underlying data is limited and sometimes problematic. For example, large successful organisations may have judgements registered against their name which, unlike for consumers, is not necessarily a direct indication of the inability to service debt.   3) Reason for loan The reason for a loan is used more widely in business lending as opposed to unsecured consumer lending. Venture capital, working capital, invoice discounting and bridging finance are just some of many types of loan/facilities available and lenders need to equip themselves with the ability to manage each of these customer types whether it is within originations or collections. Prudent lenders venturing into the SME space for the first time often focus on one or two of these loan types and then expand later – as the operational implication for each type of loan is complex.   4) Financial ratios Financial ratios are core to commercial credit risk assessment. The main challenge here is to ensure that reliable financials are available from the customer. Small businesses may not be audited and thus the financials may be less trustworthy. Financial ratios can be divided into four categories: Profitability Leverage Coverage Liquidity Profitability can be further divided into margin ratios and return ratios. Lenders are frequently interested in gross profit margins; this is normally explicit on the income statement. The EBIDTA margin and operating profit margins are also used as well as return ratios such as return on assets, return on equity and risk-adjusted-returns. Leverage ratios are useful to lenders as they reflect the portion of the business that is financed by debt. Lower leverage ratios indicate stability. Leverage ratios assessed often incorporate debt-to-asset, debt-to-equity and asset-to-equity. Coverage ratios indicate the coverage that income or assets provide for the servicing of debt or interest expenses. The higher the coverage ratio the better it is for the lender. Coverage ratios are worked out considering the loan/facility that is being applied for. Finally, liquidity ratios indicate the ability for a company to convert its assets into cash. There are a variety of ratios used here. The current ratio is simply the ratio of assets to liabilities. The quick ratio is the ability for the business to pay its current debts off with readily available assets. The higher the liquidity ratios the better. Ratios are used both within credit scorecards as well as within policy rules. You can read more about these ratios here.   5) Size of loan When assessing credit risk for a consumer, the risk of the consumer does not normally change with the change of loan amount or facility (subject to the consumer passing affordability criteria). With business loans, loan amounts can range quite dramatically, and the risk of the applicant is normally tied to the loan amount requested. The loan/facility amount will of course change the ratios (mentioned in the last section) which could affect a positive/negative outcome. The outcome of the loan application is usually directly linked to a loan amount and any marked change to this loan amount would change the risk profile of the application.   6) Risk of industry The risk of an industry in which the SME operates can have a strong deterministic relationship with the entity being able to service the debt. Some lenders use this and those who do not normally identify this as a missing element in their risk assessment process. The identification of industry is always important. If you are in manufacturing, but your clients are the mines, then you are perhaps better identified as operating in mining as opposed to manufacturing. Most lenders who assess industry, will periodically rule out certain industries and perhaps also incorporate industry within their scorecard. Others take a more scientific approach. In the graph below the performance of an industry is tracked for two years and then projected over the next 6 months; this is then compared to the country’s GDP. As the industry appears to track above the projected GDP, a positive outlook is given to this applicant and this may affect them favourably in the credit application.                   7) Risk of Region   The last area of assessment is risk of region. Of the seven, this one is used the least. Here businesses,  either on book or on the bureau, are assessed against their geo-code. Each geo-code is clustered, and the projected outlook is given as positive, static or negative. As with industry this can be used within the assessment process as a policy rule or within a scorecard.   Bringing the seven risk categories together in a risk assessment These seven risk assessment categories are all important in the risk assessment process. How you bring it all together is critical. If you would like to discuss your SME evaluation challenges or find out more about what we offer in credit management software (like AppSmart and DecisionSmart), get in touch with us here.

Collections Resilience post COVID-19 - part 2

Principa Decisions (Pty) L

Collections Resilience post COVID-19

Principa Decisions (Pty) L