Debt Collection Strategy
Everything about Debt Collection Strategy
Financially things are looking very different for most of us compared to where we were a year ago. The COVID-19 pandemic and the associated lockdowns and restrictions have put severe pressure on employers, with job losses, recruitment freezes and pay cuts affecting the whole economy.
The combined effect of this severe economic turbulence has been a tidal wave of non-payment of debt that has already started to wash over credit control departments. Companies all over the UK are facing the toughest ever challenges to their debt collection strategy. So how can you ensure that your strategy is streamlined and effective in these difficult times?
Identify the vulnerable
One of the most important aspects of debt collection is to differentiate between customers who are in arrears for familiar reasons and those who may have fallen into financial difficulty due to COVID-19. (For more information on that aspect, please refer to our recent article on managing cashflow during Covid-19) Establishing the following details can help to identify these customers:
• Credit status
• Number of new credit applications
• Occupation
• Earnings
• Reason for the non-payment
By gathering this information, you are in a better position to understand their current circumstances and where they are likely to be in a few months’ time.
Accurately assess affordability
A triage process should be applied to establish the level of assessment required in the case of short-term debt collections and longer-term action.
This should involve the study of cash flow, household balance sheets and Open Banking information to come up with accurate assessments of affordability. Data from credit agencies along with predictive analytics may also be useful here.
Improve ongoing communications
Communication is vital to ensure that you remain informed about the customer’s situation and to update your own records and approach to each debt. This includes the capacity to note important changes to their circumstances such as payment holidays, unemployment, or reduction in income.
This is best achieved through an omnichannel approach, which gives you the ability to be flexible and to communicate with each customer in the most effective method for them, whether that is through SMS, WhatsApp, email, mobile applications or telephone calls.
Manage the end of payment holidays
Customers who have been affected by COVID-19 and are coming to the end of payment holidays may need to be treated differently to regular non-payers. This means setting up a flexible solution that includes the capacity to adapt repayment plans as they move out of their payment holiday.
It is a good idea to go through your debt recovery processes and to establish whether they are fit for purpose, able to handle the changing circumstances of your customers and are appropriate. This includes ensuring that your methodology for segmenting customers is effective and fluid enough to ensure your customers are always in the correct category.
Be data-driven
Using mathematical optimisation through analytics can be the most effective way to ensure that your debt recovery processes will be efficient.
Data-driven decisions can be applied to most stages of the recovery and collections journey and can help you to reach decisions on the best approach for each account.
Review your operations
Over the next four months, the UK can expect to see a significant rise in defaults and impaired loans, which will put increasing demands on companies to be able to manage these issues flexibly. This is therefore a good time to undertake a comprehensive review of your debt processes to ensure that they are effective and dynamic enough to cope with the ongoing turbulence.
In many cases, UK companies are increasingly turning to professional debt collection agencies to manage their domestic and international debt collection. If you want to know more about how we can help you to recover your outstanding debts in a professional, modern way, get in touch today.
For more information on UK Debt Collection or International Debt Collection, please contact us. Our website platform also offer International Letter Before Action Services. Credit Limits international is a member of the TCM Group.