Collection Expertise Is Critical During Economic Uncertainty

 

Are we in a recession? Is a recession coming? Will there be rate cuts? Is inflation getting better or worse? Depending on the news medium, or what day of the week it is, or what the chatter at the water cooler says – economic conditions are undeniably tough (and uncertain). The Directors of Finance within corporate organizations are tasked with monitoring the chatter and setting credit policies while watching the fluidity of their customers’ credit limit. At the same time, with the end of government assistance put in place by the pandemic years, more and more businesses are being pushed into debt and not able to meet payment terms.

For the Directors of Finance, it can be stressful to watch your aged receivables mounting up, but with the right collections support they can minimize the risks and maximize debt recovery – even in the midst of economic uncertainty – through:

• Profiling customers to streamline collections efforts. 
• Adjusting negotiations processes using debtor psychology 
• Implementing forecasting models to minimize risks, and 
• Enlisting the right collections support. 

Profiling customers to streamline collections efforts to maximize your recovery (and lower DSO)

Inflation, interest rates, rising energy prices, along with the still-prevalent supply chain issues are all combining right now to cause increased cash flow issues. Some business customers who have fallen into arrears purely as a consequence of the current economic headwinds may never have experienced cash flow issues before. For them it is a new experience.

Why does that matter? Well, apart from the obvious effect of creating more work for the creditor, it’s important to recognize because these customers do not know how to reach out and discuss the issues with the creditor, nor do they know how to negotiate a repayment of their debts. Research suggests that they have a significantly faster journey back to black than those typically in arrears.

Unlike repeat offenders who can take up to 2.5 years to clear debts, those plagued exclusively by the financial downturn are more likely to feel bad about their situation and will move decisively to get back out of arrears in under one year.

Identifying those debtors who have fallen behind as a result of the financial economy can be the first step towards tailoring a more successful outcome for both parties.

Adjusting negotiations processes using debtor psychology

Implementing a broad collection policy can have unintended consequences for many customers. By applying a punitive or one-size-fits-all collection policy, you can ultimately be pushing good customers further into debt. 

For instance, your policy may state that a customer must pay one full arrears installment with a maximum of three months for any extension. Depending on the circumstance, one customer may only be able to afford half of this cost, while another customer might be able to afford one and a half times the installment. Meanwhile, one may only need to delay payments by two months, whereas another may need a four-month extension. 

Unfortunately, applying a blanket policy means you may miss out on opportunities to maximize your returns, while also alienating those customers honestly struggling to meet repayments. This is especially true of those who are victims of the financial crisis and are not usually found on any collections list. 

As a result, you should always be ready to redirect your negotiations process – placing the customer at the center of your strategy will ultimately help you to protect their trust in your company, while ensuring you maximize returns once they regain financial stability. 

Implementing forecasting models to minimize risk

So, how can a busy collections team minimize the risks and implement a more tailored approach? 

Primarily, it’s about listening closely to customers so you can compromise on a solution to best match their unique debt profile. Providing the right payment arrangement in the early stages of debt is key to success here, with the wrong solution potentially leading to higher volumes of delinquent debtors. 

That’s a negative for your customers, but also for your business, with a growing number of aged receivables leading to an increase in outsourced receivables and a greater number of debt collection lawsuits – all of which can be costly, eating further into your bottom line. 

Organizations that apply insights from customer profiling will be more successful during negotiations and achieve a better return rate across the collection process. 

But we can also take this approach one step further. Before entering into a contract with a new customer, it’s a good idea to do your research. Look at financial statements, audit reports, and credit checks to explore their historic performance and identify whether they will be vulnerable to the current economic crisis. Flagging these warning signs early on might just save you time and money in the long run. 

Enlisting the right help 

Sometimes, despite taking all these steps, it’s impossible to keep receivables under control. Outsourcing to a commercial collections specialist is the most effective way to minimize your recovery list and achieve maximum returns, improving your cash flow and reducing stress levels. 

When selecting an agency in the current economic climate, it’s important to look for a partner with experience of previous financial crises. With over 40 years’ commercial collections experience, Brennan & Clark provides just such a safe pair of hands. 

Our insight and expertise will help you collect everything that can be collected without damaging client relationships – something that’s particularly valuable for those first-time debtors overwhelmed by the current economic situation. 

So, whether you’re looking to revise your negotiations strategy in light of the potential recession, or you feel your current collections agency needs some additional help handling financially vulnerable customers, our experts at Brennan & Clark can offer great advice, increasing your returns with a sophisticated approach to debt recovery based on long-term experience.

Talk to us today for more.