The last two years have changed the world in a myriad of ways, one of which is the lingering debt that thousands more consumers are now having to deal with. Unpaid debt or ‘problem debt’ has soared. Pre-pandemic, there were estimated to be just over 1 million UK households facing problem debt. But by mid-2021, Citizens’ Advice estimated that number would have risen to at least 1.5 million.

This increase, coupled with a cultural shift that has occurred since we first entered lockdown, has forced debt collection agencies to reconsider their methods. Digital debt collection is helping to transform the industry, not only for lenders but for borrowers too.

Finding Compassion in Collection

Most people would not automatically link compassion to debt collecting, because, in particular, those with problem debt have often only seen the uncompromising face of an outdated industry. But the sector has recently been through a period of self-reflection.

Firstsource has been working with creditors and collection agencies for over two decades. Throughout this time, we have increasingly found that using compassion, relating to borrowers, finding ways to empathise with them, has been the best way to recover debts. Building a rapport helps borrowers feel appreciated and understood, leading to much higher rates of collection.

One barrier to empathy has been that the number of borrowers has traditionally far outstripped the lenders’ ability to offer this kind of service. It is, in part, this blanket system that has given the industry its current reputation. But the advent of digitised debt collection is poised to change this.

How Debt Collection Digitised

While anyone would be hesitant to focus too much on the positives that have occurred during the pandemic, there are some rays of sunlight that have shone through. For one, consumers have begun to realise the importance of their voices. This has precipitated the aforementioned cultural change, rearranging consumer hierarchy to emphasise the adage: the customer is always right. And now many industries are looking for ways to become more customer-friendly

The debt collection industry has responded by ramping up its digital offerings. Through the use of various modern technologies, debt collectors can offer a more customer-centric service:

• Machine learning: Digital debt collectors are employing machine learning to create tailored repayment plans for each customer. By understanding each borrower’s habits and unique financial situation, collectors can then find the best route to returns.
• Personalised correspondence: Customers are offered a range of electronic communication channels through which they can correspond with their collectors. Then, rather than generic messaging, they receive messages with personalised subjects and details about their repayment plan.
• Automation: These communications are sent to borrowers through automation, reducing costs for collectors and allowing them to focus on finding new ways to further improve the customer experience.

Digitisation has a habit of improving all services, particularly when used as a hybrid service with human interaction, and debt collection is no exception. Many digital debt collectors also offer 24/7 helplines, with phones answered by trained debt collection professionals, for when customers want instant replies from real people.

Why Digital Debt Collection Works

This digitalisation has worked in line with Firstsource’s findings that compassion is one of the best tools debt collectors have. Organisations like Martin Lewis’ Money Saving Expert, Citizens’ Advice, and a range of charities give advice to borrowers. But a pervading feeling from many borrowers that there is shame in being in debt, originating in the power imbalance that exists between debt and borrower, stops many from seeking help.

Each of these applications have started to redress this imbalance, placing more of the power with the traditional underdog in the relationship. By providing unintrusive collections that focus on allowing the customer to decide when, why, and how they are communicated with, collectors help break down the stigma surrounding debt. This is the compassion that Firstsource has been injecting into collections. Empowering borrowers lets them know they are valued and not judged, creating a collection service that is simultaneously more friendly and successful at its primary purpose.

Real Proof Digital Debt Collection Works

These aren’t just pretty words either, the benefits are already translating into real money for organisations that switch to empathetic digital debt collections. The statistics truly prove these methods are wholly more efficient than the traditional approach.

The most tangible way of measuring debt collection success is of course through the money repaid. Clients that have implemented the white-label Firstsource Digital Collection Solution have seen resolution rates climbing by up to 400%, while at the same time collection costs drop by 3-4%. In monetary terms, this has resulted in close to £200,000,000 collected each year.

Delinquency rates are also vastly improved. By providing individualised repayment plans, borrowers are far more easily able to meet the terms. This has led to almost ten million accounts being saved from becoming delinquent each year.

And finally, digital debt collection has also helped boost collectors’ profits by improving productivity. The fully configurable and compliant software easily plugs into their existing stack to begin automated delivery, giving collectors complete control over workflows, processes, and communications. This mitigates compliance and operational risks and reserves employee manpower for more intricate tasks. Employers can use this productivity to scale up their organisations while reducing costs to help for more efficient future budgeting.

Reshaping Our Perception of Debt

For many, there has been little choice but to enter problem debt since the pandemic began. In some cases, whole industries have tumbled, and the fallout has hit everyday people the most. In response, the debt collection industry must take a holistic approach when dealing with borrowers.

Empathy is a powerful tool that has for too long not been properly used by the industry. To reach the growth it strives for, the sector must not be afraid to change, and in this case, that means modernisation. But beyond that, digital debt collection is the best way, not only to improve profit and productivity but to reshape the way society sees debt itself.

According to a recent report, late payments are costing SMEs in the UK a total of £2 billion every year, with the entire sum of the missed payments totalling £14 billion^[1]. Below Edwin Gabriëls, Consultant at Onguard, explains the intricacies of payments collection management, offering some tips for businesses.

With such a large amount owed to businesses, it would suggest that many organisations would benefit from improving their collection management strategy. Otherwise known as dunning, collection management is a vital process in credit control. It sees organisations follow set processes to chase for outstanding payments, making the chance of receiving payment more likely and given that 62% of invoices issued by UK SMEs in 2017 were paid late^[2], it’s important that businesses get dunning right.

A sub-standard dunning strategy can cause organisations to run into a number of challenges when trying to obtain a late payment, ranging from customers not responding to reminders and evading payment for long periods of time to ineffective systems requiring a great deal of data mining before the first step can even be taken. These factors often make collecting overdue payments a lengthy and difficult process. A poorly executed dunning strategy can be time-consuming, with UK SMEs estimated to spend 130 hours a year chasing outstanding invoices^[3], and can have a knock-on effect for the organisation as a whole, potentially damaging customer relations and inhibiting cash flow.

By creating an effective dunning strategy, which takes a structured approach to each stage of collection management, businesses are better placed to overcome these challenges.

By creating an effective dunning strategy, which takes a structured approach to each stage of collection management, businesses are better placed to overcome these challenges.The right strategy will enable credit control teams to determine factors such as how many times a customer is chased before legal proceedings are launched and what form of communication to take with the visible results of more efficient teams, reduced overdue payments and increased cash flow.

To develop the right dunning strategy for your organisation you should include the three stages and processes outlined below:

1. Structured Dunning

This stage should form the basis of every dunning strategy as the structured nature allows credit controllers to work to a predetermined framework to gain remuneration. For example, this could take the format of sending an initial reminder five days after an invoice becomes overdue. Then, if it remains unpaid, another reminder should be sent out at 15 days and a final reminder should be sent after 30 days. If payment still hasn’t been made after the three reminders, then legal action should be started. By following this process of chasing for payment, customers will come to the realisation that processes within your company are structured, meaning they can’t evade payment, leading to a reduction in overdue balances. Additionally, this format enables companies to pinpoint where issues occur during the process.

2. Dispute management and internal collaboration

Once structured dunning is in place, you can move on to implementing dispute management processes to look into issues customers have raised with invoices and processes. This stage requires some collaboration with other departments within your business to get to the heart of a customer’s problem and allow you to resolve the issue quickly as the sooner the dispute is resolved, the sooner you can get back to chasing for payment. By adding this step to your existing dunning strategy, you will see a reduction in overdue balances and an improvement in your cashflow as it doesn’t allow customer disputes to linger and for invoices to go unpaid for long periods of time.

3. External collaboration

Finally, by using the data you hold on the customer from both internal and external sources, you can determine how the customer wants to be addressed and the best ways in which to communicate. As customer engagement is becoming increasingly important, it is vital to use the tools at your disposal to create the correct communication at the right time. For example, if you have a long-lasting relationship with a customer it is crucial to address them in the right manner to avoid souring the relationship. This will help you avoid risks to cash flow and overdue balances posed by miscommunication.

For an effective strategy, businesses must first ensure they enforce structured dunning before integrating the other two elements as the strategy matures.

For human resources specialist t-groep, collaboration with other departments has become a key aspect of their dunning strategy. In fact, the entire company has access to the collection management solution as it is considered that those working closest to the customers have the best relationship with them. As such, these individuals are better placed to decide how to tackle the issue of outstanding invoices and find a way to ensure the amount is paid.

For an effective strategy, businesses must first ensure they enforce structured dunning before integrating the other two elements as the strategy matures. As a by-product of this three-tiered approach, the credit control department will gain a more centralised position within your organisation, rather than only becoming involved at the end of the relationship when an invoice is created, and payment is required.

With an established dunning process, it is possible to use information gained on customers’ payment habits and feed them into other processes within credit management, such as the order to cash chain. External data gathered through credit management can be used to determine whether customers are high or low risk, and decisions can be made as a result. For example, the knowledge that a customer regularly avoids making payments can inform decisions over whether to release an order to them. Additionally, this data can be used to segment customers into homogenous groups which can be used to determine aspects such as payment terms or discounts. This information could then be fed back into the dunning strategy to determine when chasing for payment begins.

It is important to remember that dunning certainly isn’t one-dimensional. In fact, with benefits including increasing cash flow, lowering overdue payments and improving customer relations, an entire organisation is likely to reap the rewards of an effective dunning strategy. It will also encourage credit controllers to be more focused on customer communication and address the disconnect between the way different departments communicate with customers. Although there isn’t a one-size-fits-all approach to dunning, by following this three-tiered framework, businesses will reduce the time spent on chasing customers for payment and achieve greater results.

[1] https://www.independent.co.uk/news/business/news/late-payments-uk-business-cost-sme-2-billion-a-year-bacs-payment-customers-a7846781.html

[2] https://smallbusiness.co.uk/late-payments-trend-get-worse-uk-smes-2542060/

[3] https://www.siemens.com/content/dam/webassetpool/mam/tag-siemens-com/smdb/financing/brochures/united-kingdom/sfs-uk-late-payment-report.pdf

Collectible investments remain one of the most open – and unpredictable – investment markets. The term can cover almost anything that sits outside more conventional financial investments such as ISAs, stocks and shares, or property. This leads to a market where childhood toys compete with gold coins, wine or even cars. The world of collectible investments is eccentric, to say the least.

Successful Collectible Investments

In recent years, the childhood toy market has seen some major successes, with large collections and rare Matchbox Cars going for serious amounts of money. These compete with Star Wars figurines, the popularity of which continues to grow with the recent reboot of the film series. The music industry has also seen some major money-earners, with memorabilia and vinyl first editions fetching decent prices against their original outlay.

New to the market are vintage electronics such as the original Game Boy, but given the relative short lifespan of modern day machines it’ll be interesting to see if this specific area of the market has any future potential.

Gold remains ever popular, with coins and jewellery keeping value and bars being seen by many as a safe side-investment.

Failures

Wine success stories are everywhere, but it’s usually only at the top end of the market where monetary dreams can be made. At this level, investors tend to be professional in their knowledge of what wines to buy and where to sell them – the market requires real expertise alongside financial wealth. More casual investors are too often left with crates of ancient vino that the modern market has lost interest in.

Other failures highlight the difficulty in predicting future successes. Figurines such as those created in Germany by Hummel were looked upon by many as heirlooms in the making, but the manufacturers made their pieces in such bulk as to destroy any future sellers’ market.

Mass production has also dampened products that in older years have been successful – original film memorabilia from the 1920s and ‘30s has often made a profit, but get to the 1970s and beyond and the word ‘rarity’ is virtually non-existent.

Is it worth putting money in?

Looking at the investment market as a whole, there are better guarantees elsewhere that are likely to keep your money safer, even if they don’t bring the kind of financial successes you had in mind. Looking at a specific example such as Star Wars memorabilia, it would have been impossible in 1977 to predict the success that followed, meaning much is left to chance.

Perhaps it’s best to look upon the collectible investments’ market as a game in itself. Given its unpredictability, buy for pleasure instead of buying with future profit in mind, enjoy your purchase, and if chance is on your side, those products resigned to the attic may just return to put a smile on your face.

(Source: ABC Finance)