Asking customers to pay overdue invoices is a routine task performed by all companies. After all, if customers don’t settle their accounts on time, serious financial problems are quick to follow. That slow and non-paying customers can put a brake on corporate investment was recently confirmed by the EOS Group survey ‘European Payment Practices 2017’.
A staggering 39% of European companies have liquidity problems due to late payments and defaults.
The issue of delayed payments and default is clearly a widespread one, not just in Europe but also in the USA, where debt collection is a $13.7 billion industry with over 6,000 ﬁrms in operation.
With that in mind, let’s look at some of the latest trends in consumer debt collection and their impact on companies.
Tighter legislation is making companies re-evaluate their debt collection strategies
Across Europe and North America, debt collectors are being scrutinised by regulators more closely than ever. That’s especially true when it comes to consumer debt.
Each country has its own set of regulations, but the overarching principle is the same: abusive, unfair or deceptive methods may not be used to collect debts.
Despite increased regulation—or maybe because of it—complaints by consumers about debt collection methods are on the rise.
In the US, the Consumer Financial Protection Bureau (CFPB) received in November 2016 more complaints about debt collection than any other financial product or service (29% of all complaints). In the UK, complaints to the Financial Ombudsman Service (FOS) about debt collection practices for consumer credit products increased in 2016/17 by an astonishing 45%.
Of course, not all complaints are upheld. And the blame for the increase in complaints can’t be laid entirely at the door of debt collectors either. Easier access to an official complaints system and a burgeoning personal debt crisis surely play their part.
Nevertheless, stricter regulation and the upsurge in complaints is encouraging companies to re-evaluate their debt collection strategies and improve their invoicing systems. After all, they don’t want to end up with unhappy customers or hefty penalties for violating legislation.
In the US, more than a third of complaints made to the Consumer Financial Protection Bureau about debt collection practices concerned debts that were no longer owed by the consumer.
Source: Consumer Financial Protection Bureau (CFPB) Annual Report 2016
Adopting a two-stage approach to consumer debt collection
Against this backdrop of tighter regulation across Europe and North America, perhaps it’s not surprising that—on both sides of the Atlantic—there is a clear trend towards adopting a two-stage debt collection strategy.
Companies are less inclined to hand over a debt immediately to a debt collector. They are much more likely to first try collecting the debt themselves by sending out reminders, whether that’s by email, letter or phone call.
Traditionally, reminders were always made manually; these days companies are embracing automated reminder systems and all the time and cost-saving benefits they offer.
In most cases, a reminder is all it takes to get paid. Customers can be forgetful and they appreciate a friendly prompt. In other cases, disputes can be resolved or payment plans arranged to avoid the situation escalating.
Only problematic accounts are passed onto a collector.
Technology and consumer attitudes are accelerating the changes
Developments in technology are giving companies and agencies much more efficient ways to adopt the softer, more consumer-friendly approach to payment collection.
Automated reminder systems are fast becoming an essential tool of collection departments. Their ability to send thousands of customised, personalised messages via their customers’ favourite communication channel—whether that’s text, email and/or phone—can make a huge difference to a company’s Days Sales Outstanding.
And it seems that rapidly changing consumer attitudes are encouraging the growth in this technology.
According to the 2016 Remind Me Generation Report, in March 2016 about 42% of consumers said they wanted companies to communicate with them by text. Just a year earlier, that percentage was only 16%. Millennials are driving the demand, yet 26% of adults over 55 also want text messages, so it’s not just youngsters that value text reminders.
Those customers that would still rather be contacted by email or voice message need not be concerned. Premium automated reminder systems can send messages using different channels according to customer preferences. If the preference changes, so does the reminder service.
Companies that remind consumers to pay their bill receive many benefits: improved customer loyalty, reduced payment defaults and increased cash flow.
Let me talk to a computer, please!
Here’s another trend that may or may not surprise you. It seems that more and more consumers prefer dealing with a computer than a human being.
In the article “Debt Collection is Going Digital”, Bob Sullivan of Credit.com agrees. He suggests that many of us would rather pay off our debts with a text or a click than have an embarrassing conversation with a call centre agent.
What’s more, digital solutions help debt collectors stay on the right side of the law. Automated voice reminders are pre-recorded and they don’t call at illegal times. Likewise, self-service platforms can’t be accused of harassment.
This lack of human interaction appeals to modern consumers.
Data analytics set to become a best practice in debt collection
Debt collection practices are changing in other ways, too. In its report “A new normal in consumer debt collection and recovery: focusing on compliance while delivering results”, PwC identifies six leading practices in consumer debt collection. These include:
- using advanced analytics and alternative data sources
- increasing customer centric focus in collection processes
- incorporating third parties to strengthen collection performance
PwC points out that a company could gain early insight into problem cases (i.e. identify early on potential defaulters) by using data analytics and predictive modelling and increasing customer touch points.
This could certainly help reduce the number of court actions and the level of bad debt write-offs, yet most collectors are still unaware of the benefits of data analytics. That will surely not remain the case for long.
As you can see, there’s a lot going on in the world of debt collection, but some trends are evident, including using data analytics to gain early insight into potential problem cases and adopting a ‘softer’ in-house approach to getting customers to pay. Is it time for your company to re-evaluate its debt collection practices?
If you’d like to explore advanced payment solutions such as automated reminders, pay link services and e-payment gateways for your company, please ask to speak to one of Alphacomm Solutions specialists at +31 10 7989 501.
About Daniël Schurr
I’m Product Owner of our Reminder services and head of Support and Operations at Alphacomm. What I really like at Alphacomm is that we take on complex challenges that force me to stay on top of my game and push me to develop myself and my skillset continuously.