It is commonly known fact that that individuals from all walks of life, income types and ages fall into debt at some point and that they have a many reasons why they have missed a payment, many of which can’t be attributed simply to lacking the funds to pay – such as forgetfulness, inaccurate billing and protest debt. Therefore, a one-size fits all approach to debt collection is not fair, nor effective; a tailored approach to collections is what is most effective way of debt collection.

One thing is of the most importance i.e. transparent and regular communication, and how if done correctly, this can lead to both debt avoidance and debt collection. Early intervention and regular reminders have a key role to play in mitigating some of the reasons behind debt; but only where customers are cooperative.

Others, debtor in arrears to be offered multiple channels of communication is essential. Preferred contact channels differ hugely between customers, so to effectively engage customers and achieve the best outcomes debt collector should offer channel choice.

The importance of getting collections right is something which simply cannot be ignored by the debt collector. Increased loyalty, repeat business, and more prompt payment can be expected if debt collection is done fairly. If not, companies will lose customers, reputation damage and delayed payment.

Finally, debt is always going to present businesses with a challenge. But this doesn’t mean debt collectors sacrifice company’s reputation and customer relationships as a result. Understanding each customer’s circumstances, implementing tailored solutions, adopting a customer service mind set and keeping lines of communication open can result in both a reduction of bad debt and satisfied customers.

Debt is just another part of the customer journey – and it’s essential that organisations recognise this.

The importance of a flexible approach 

It is found that many of all debt is cleared immediately, as soon as persons are reminded to pay. However, for those instances that require further communication, it seems that a variety of methods need to be deployed to engage customers effectively. While the majority of people say they will react best to a telephone call or letter, some prefer either email or SMS, especially if these advise the payment method.   Therefore it’s both important to offer a range of communication channels and to also look at customer profiles in order to deploy the best techniques. For example, dialling a customer who works full time during office hours may simply end up agitating them – text or email may be a better approach.

When it comes to doorstep visits, Trustman carried out further analysis of collections efforts through visiting customer. Of those persons visited many time made immediate payment or agreed a payment plan. Other persons in circumstances of vulnerability and therefore in need of further support and assistance, highlighting that a great deal of care needs to be taken when undertaking such collections. Door step collection is often used as a last resort. However, it can be extremely effective earlier in the process in terms of customer engagement and affordability discussions. These face-to-face visits also provide an effective opportunity to deliver other customer-facing services at the same time, such as meter reads

Best debt collection practice:

The good companies are most likely to deploy best practice techniques in their debt recovery procedures. They were the most likely to approach customers with friendly and helpful staff, as well as providing easy payment plans for people struggling to pay debts. They were also most likely to make their charges clear and have all the relevant account information to hand when speaking to customers.  It is very important to ensure that debt collection agents are equipped with the right tools and information. This could include what the charges are, where they’ve come from and all relevant account information to ensure the customer doesn’t have to repeat information and the conversation is as efficient as possible.

The most effective way to bring down the number of customers in arrears is to tackle the epidemic of time-poor debt. Therefore, regular reminders and soft multi-channel communications before bill issue are important, as is making the process of paying as easy as possible (often through a range of options – e.g. regular direct debits or online payment tools).

Keeping lines of communication open

Finding ways to make payments part of a regular dialogue with customers is advantageous. This is especially the case where a bill may be higher than the usual amount, giving customers the chance to make the necessary adjustments or alert you to the fact that they may have problems paying.

Worst practice – who takes a poor approach?

The most common poor practice was cited as inaccurate billing – aggravating the issue of protest debt. Reliable and accurate billing is a simple way to reduce the number of customers who enter the debt cycle and to avoid repeat contacts. Given the above findings around the reasons for debt and attitudes of the majority of customers, it’s also worrying to see high reported prevalence of overly aggressive debt recovery and people being made to feel embarrassed about their missed payment.

It is found during the course of recovery that the importance of making it easy to pay or, in the case where payment isn’t possible, to offer a realistic payment plan that acknowledges an individual’s particular circumstances.  Although collections tactics may lead to a customer agreeing to a payment plan, it’s important to recognise that if it’s unrealistic it won’t be sustainable in the long term and could create repeat contacts and a bigger future issue.

The hidden cost of poor practice

While the aim of debt recovery is to improve cash flow in an efficient manner, there is a clear financial downside to many of the poor practices being employed. Customers on the receiving end of poor debt recovery procedures are more likely to switch provider and recount details of their poor experience to others. There is also evidence that poor practice hampers the recovery of the debt in question, with a significant proportion of customers saying that they would delay payment further to punish their company.

The benefits of getting debt recovery right

In contrast, customers are very appreciative of the help and understanding shown by companies that follow debt recovery best practices.  They are more likely to remain loyal and recommend the company to others. They are also much more likely to pay more promptly, as gratitude for help during a more difficult period in their life. Remember, a customer’s debt may just be a temporary blip. Companies must balance the long-term lifetime value of a customer against a short-term payment gain that may lead to the customer choosing to switch supplier

Summary

It is true that individuals from all walks of life, income types and ages fall into debt at some point and that they have a range of reasons why they have missed a payment, many of which can’t be attributed simply to lacking the funds to pay – such as forgetfulness, inaccurate billing and protest debt. Therefore, a one-size fits all approach to debt collection is not fair, nor effective; a tailored approach to collections is what is required.

One thing that can’t be forgotten is the importance of transparent and regular communication, and how if done correctly, this can lead to both debt avoidance and fairer outcomes in the first instance. Early intervention and regular reminders have a key role to play in mitigating some of the reasons behind debt; but only where customers are receptive.

In addition, offering customers in arrears multiple channels of communication is essential. Preferred contact channels differ hugely between customers, so to effectively engage customers and achieve the best outcomes companies should offer channel choice.

The importance of getting collections right is something which simply cannot be ignored. Increased loyalty, repeat business, and more prompt payment can be expected if done properly. If not, companies face losing customers, suffering reputational damage and customer disengagement.

Ultimately, debt is always going to present businesses with a challenge. But this doesn’t mean they must sacrifice their reputation and customer relationships as a result. Understanding each customer’s circumstances, implementing tailored solutions, adopting a customer service mind set and keeping lines of communication open can result in both a reduction of bad debt and satisfied customers.

Debt is just another part of the customer journey – and it’s essential that organisations recognise this.