Debt Collection Strategies for Effective Recovery

Whether your debt collection agency is full of experienced professionals or newcomers, successful recovery starts with an effective strategy and the right techniques.

This article will guide you through creating an effective collection strategy that optimises recovery rates, maintains positive customer relationships and supports individuals to achieve financial health.

What is a Collection Strategy?

Collecting funds from individuals who had trouble paying back borrowed funds can be complex and a confronting experience for both collectors and debtors. A collection strategy is essential to guide collectors through difficult conversations and establish a strong foundation for the overall debt recovery process.

The Importance of a Well-Defined Collection Strategy

A clear collection strategy with systematic procedures in place ensures that staff recover outstanding debts in a way that aligns with both internal standards and legal guidelines. Without a well-defined collection strategy, the debt collection process can face bottlenecks, increasing the chance of bad debts rising.

Steps to Develop an Effective Collection Strategy

It is vital to take a step-by-step approach in order to create a solid foundation for an effective debt recovery approach. Here are the steps you can follow to develop a successful debt collection strategy:

Segment your debtor profile

Using the same recovery strategy for all debtors can lead to sub-optimal results. To maximise collection efforts, segment your debtor portfolio based on factors such as credit history, delinquency record, outstanding balance and payment behaviour. This allows you to tailor recovery activities according to the individual’s profile.

As an example, debtors with a strong repayment track record may only require gentle reminders such as sending automated payment reminders through SMS. In comparison, for delinquent accounts, you could implore a more assertive approach through adopting a multi-channel communication strategy where staff engage with debtors across email, SMS and over the phone to maximise the chance of getting in contact and receiving a repayment.

Utilise Analytics

By analysing historical data, you can identify patterns and trends that inform your collection strategy. Data analytics can uncover meaningful insights such as the most successful communication channel, optimal contact times and key metrics including days sales outstanding.

Incorporating these findings into your collections process can allow your debt recovery team to operate more efficiently. For instance, you can utilise these insights to schedule collection calls at specific times of the day, prioritise efforts based on account status and build positive customer relationships by reaching out to debtors through their preferred communication channel.

Understand the regulatory landscape

When developing the recovery strategy, it is crucial you are familiar with the relevant regulations that govern debt collection practices in your geographical region. This will ensure you execute your collection strategy in a compliant manner and maintain legal compliance to prevent legal action from occurring.

Must Haves of an Effective Debt Collection Strategy

Effective debt collection starts with a clear and well executed strategy. An effective debt collection strategy is built on the pillars of clear communication, customisable payment terms, strict compliance measures, accurate record keeping and the usage of advanced technologies that extend beyond phone calls. Let’s explore how these elements come together to become the ‘must haves’ of an effective debt collection strategy:

Effective and Consistent Communication

Effective and consistent communication is the prerequisite to achieving strong cash flow and fostering positive relationships with debtors. Without it, debt collection efforts can turn into a confrontational, unfruitful exercise. A delicate balance is needed between demonstrating empathy, while being firm and clear about the debtor’s financial situation and the essential components of a payment plan.

Throughout the debt collections process, it is crucial debt collectors demonstrate empathy as they navigate through challenging conversations about overdue accounts. Flexibility in communication is also key, as aligning the communication method with the debtor’s channel preference increases the likelihood of building a strong customer relationship, creating consistent engagement and the successful recovery of overdue payments.

Customisable payment plans

A successful debt recovery strategy recognises each individual’s financial state is unique, deviating from the conventional ‘one-size fits all’ approach. Working with your accounts payable department to customise an individual’s repayment plan that accommodates their financial state helps optimise recovery rates and create a positive relationship with the debtor.

Regulatory Compliance

Debt collection regulations are continuously evolving, making it critical to stay abreast of the applicable laws and integral to create a collection strategy that is easily adjustable to mitigate the risk of non-compliance.

In Australia, the ‘Debt Collection Guideline: for Creditors and Collectors‘ stipulates the time of a day contact can be made, restrictions on the number of call attempts and prohibits contact on public holidays.

Utilising a cloud debt collection communication solution across your debt recovery processes enables you to assign call-time windows (for example, 9:00AM-5:00PM AEST) and track the number of a times contact has been attempted and made, ensuring compliance is met during the collection effort.

It is also important to be aware of other key regulations pertaining debt collection in Australia:

• Australian Consumer Law (ACL) – prohibits collectors from engaging in misleading or deceptive conduct, use unfair tactics or harass or intimidate debtors
• The Privacy Act 1988 (Cth) – regulates the way debt collection agencies collect, use and store personal debtor information
• National Consumer Credit Protection Act 2009 – mandates a person must not engage in a credit activity if the person does not hold a licence that provides authorisation to engage in the credit activity

Accurate Record-Keeping 

Maintaining up-to-date and accurate debtor records is a fundamental aspect to recover debts. In order to comply with the ‘Debt Collection Guideline: for Creditors and Collectors’ all communication with debtors, including any payments and relevant documentation, must be maintained in a current, accurate, and complete manner. Furthermore, organising records in an easily accessible way will improve the process of identifying delinquent accounts, aiding management to better prioritise efforts.

Offer Multiple Payment Options

An effective collection strategy provides flexibility for debtors to make repayments in various ways. Offering versatile payment options such as flexible payment plans and convenient payment methods such as a self-service portal on your website or sending invoices across email can expedite the collection of unpaid debts in a timely manner and boost cash flow.

Use of Advanced Technology 

Advanced technology is transforming recovery strategies, allowing managers to automate manual processes and operate more efficiently. Data analytics, AI and machine learning tools have the ability to analyse large volumes of data, surfacing crucial insights that can refine your collection procedures.

Moreover, debt collection software such as cloud contact centre communication technology streamlines recovery operations through centralising all interactions with debtors into a single platform.

By embracing and incorporating these ‘must haves’ into your debt collection strategy, you can achieve favourable results.

DebtSCAPE is IPscape’s AI-powered contact centre solution that is used by debt collection agencies to maximise collection rates and optimise recovery communications. The solution includes an extensive feature-set including a predictive outbound dialler, customisable call scripts, quality assurance module, PCI DSS payment tool, call recording and storage, analytics and reporting. DebtSCAPE empowers collectors to deliver empathy and improve efficiency across interactions that occur across voice, email, web chat, WhatsApp or SMS.

If you would like to understand more information about how you can optimise your debt collection strategy through using cloud contact centre technology, contact IPscape today to view a demo of DebtSCAPE.

Organisations use IPscape’s communication technology platform, SCAPE, to unlock growth by building personalised communication with customers at scale, through their channel of choice.