The global COVID-19 pandemic brought about a significant reset that was especially severe on the debt collection industry. Global debt collectors struggled to adapt to the dramatic rise in the number of vulnerable debtors brought on by job losses as well as the difficulty of how to provide debt recovery services in completely unchartered waters.
Over the next few years, the scale of the pandemic fallout is likely to increase and Debt Collection Agencies (DCAs) need to make sure their debt recovery procedures can adapt tothe post-COVID19 landscape while focusing on making informed judgments about their clients, actively identifying and supporting financially vulnerable individuals, and taking fair, debt-resolution-focused action.
Here are two areas for consideration that, in our opinion, businesses should prioritise in apost-covid landscape and beyond.
Building Better Customer Engagement Strategies
While many global debt collectors were able to re-establish themselves quickly post-covid,many have simply reverted to the “business as usual” model. However, much of the emphasis now is on creating future-proof, flexible business strategies that allow them to communicate with customers more clearly and efficiently – rigid scripts and manual debt collectionpractices are now considered ineffective as the pandemic forced many DCAs to find new ways to engage with them.
If international debt recovery agencies are to survive not only post-covid but also through the predicted debt tsunami that is mounting throughout 2022/23, companies will need to invest in better internal systems and digital communication technologies that allow them to be more active and effective in their debt recovery lifecycle.
More digital involvement results in happier consumers, more successful debt collection outcomes, and lower total operating costs because fewer call centre and administrative staff are required.
Fairer and More Responsible Debt Collection
As stated by OFGEM – “We expect suppliers (and any third parties they use) to make sure that any debt management procedures are fair and take the customer’s financial situation into account.”
For any business, treating customers fairly is always a priority, but to do so successfully in a post-covid environment, debt collection services must be even more aware and responsive tothe specific situations of each individual client and be able to deal with them accordingly. Due to COVID-19, borrowers with no history of missed payments will begin to join the collections pool; lower disposable incomes coupled with a severe cost-of-living crisis and the impact of inflation means more people are forced to turn to credit than ever before. Therefore,responsible debt collection must take front and centre to distinguish these vulnerable clients from pre-covid, delinquent debtors and handle them differently and with more empathy.
“Compared to the Great Recession, households with low- to middle incomes entered the COVID19 crisis more likely to be facing problem debt and struggling to pay for essentials.
In December 2019, 3.2 million people in the UK were in severe problem debt and 9.8 million showed signs of financial distress.”
Source: stepchange.org report
Debt collection agencies must re-define contact strategies that are appropriate to these new indebted consumers. All written communications should take this into account, and recovery procedures should aim to be as straightforward, fair and low-touch as possible.
Conclusion
The Covid pandemic and now the unprecedented high inflation rates and cost of living crisis threaten to increase the number of debtors at risk – many for the first time. Businesses that cananticipate and adapt to these difficulties and make plans for them now will not only survive but also thrive.
Fostering a more proactive yet empathetic approach to debt recovery by implementing new digital communication channels and more responsible debt collection activity will significantly improve collection rates that are so vital to business survival.
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