As I’ve openly written before, we at receeve are trying to change the collections industry. This is a segment that should be technology driven and freed of its manual and complicated past. If you have noticed diminishing returns in your collections department or receivables, perhaps it’s time for a deeper dive into the ‘why’ of the issue. So many steps of a successful collection strategy can be driven by technology and can benefit both sides of the equation exponentially.
Yet, I see an ever growing problem in the thinking of many players in the segment. Let me focus first on the players currently active in collections. You have approximately 10 large incumbents addressing the European market. These are mostly either public companies or players owned primarily by private equity firms. They have grown fast in the past ten years where capital has been cheap and their expansion fuelled by M&A. The rest of the market is small to midsize players and thereafter thousands of “mom & pop” collection agents. These tend to primarily be small law firms. Unsurprisingly, they all make their money via collections fees and the interest that is charged on top.
So here’s where the problem starts. I am a large bank or lender. I have in the past done as much of the collections process in house as possible and have then sold on debt or used a third-party partner to service my debt. This is all fine and good. Yet, times have changed. Now, my customers can’t be pursued via aggressive tactics and they no longer accept exorbitant fees, plus interest which they categorically consider unfair. The regulators will also soon be on my back about intransparent tactics and pricing. What to do?
Well, your first thought may be to think about innovation and technology. You’ve been hearing quite a lot about artificial intelligence, and automating workflows has been all the rage for years. So you take that meeting with your current collections partner and he starts telling you about their newest software, and how they can help you with artificial intelligence and debtor platforms. BUT, here is the rub. Do you really think the partner who is incentivised to increase their collections fees and the interest on top really cares about your customers? Further, do they really have the expertise and domain knowledge in-house to build software that wows your customer while delivering on your technology goals? Or do these partners really want the transparency that software provides to be so evident to not only you but the debtors as well as regulators? Tough to say.
Using partners who have historically addressed collections for collections sake and not in the best interest of you and your customers is like letting the fox in the henhouse.
You need to pursue a software driven collections strategy steered and implemented by those who understand software and your customer’s wants and needs. You have to first engage in a dialogue with those who owe you money. You have to treat them fairly, going so far as to avoid charging late fees and threatening them in any way. You have to make it as easy as possible for them to engage with you and for them to pick the most convenient path to repayment. Most importantly, you have to focus on the time to cash and the cost in your debt resolution strategy. The only way going forward is via software that is built ground up to deliver on this promise and keep your hen house in order.