Learn from The Past or Be Doomed to Repeat It Debt Collection During Covid-19

 It is an often-repeated refrain that the past is something from which we must learn. Obviously, COVID-19 and everything it entails creates unique challenges for debt collections. However, the Law Firm of Thomas J Maccari wants you to know how the lessons learned from the most recent recession can help Florida debt collectors now, and what important differences there are to navigate.

Flashback to 2008

There are several things the collection industry did not do during the last global financial crisis of 2008. Specifically:

  • There was no differentiation of customers who would not have been in the situation were it not for the crash. In 2020, that would mean not identifying customers entering collection purely because of COVID-19, and that failure is a mistake.
  • Failure to identify how these customers would perform compared to every-day collections customers:
    • Not profiling behaviors to see how they differed in a collection situation
    • No reviewing how they behaved just before they came into collections
    • Not assessing how they may behave once the crisis that triggered their financial stress started to pass
    • Not profiling their likely return to financial stability and not understanding any differences in their financial morality

By failing to consider those behaviors, the industry did not change their:

  • Segmentation
  • Strategies
  • Treatment paths
  • Policies, or
  • Solution range

In the two years leading up to the crash, the average return to financial stability took 2.5 years. Meaning, if a customer had gone into collections and recovery, it was typically 2.5 years from the point of entering collections to when the debt purchaser would be able to get into a routine payment habit with the indebted customer.

The two years after 2008, that period of return to financial good was reduced to nine months. This is due to customers rolling into collections that were actually good, conscientious customers with a short-term payment problem. They have a very different financial sensibility and profile, and are soon back to employment and earning again, hence the return to good status. Treating these customers with the right outcomes now can generate a lifetime of loyalty.

The difference between the Crash of ’08 and the Coronavirus? The scale of vulnerability in both the short and long term appears greater, unfortunately. 

What’s Next?

Currently, operations are doing their best to deal with a huge increase in customer calls, driven by the respective relief and earning protection programs across the different markets. Lenders and Debt Control Agencies (DCAs) have been trying to maintain business continuity while also dealing with a significant reduction in their workforce and the challenges of the new remote/work from home practices for those who have remained.

Somewhere in that mix, it is important for the team to be asking:

  • What do I need to do today to ensure we are well-positioned to manage what will be a far larger collections portfolio in the near future?
  • And how do we do this without creating bad customer sentiment or losing future good customers?

These two considerations help determine how rapidly and strongly a collections team emerges from the crisis. Those who do not carry out the correct actions today are likely to still be blaming the crisis after it will be, in fact, long gone.

Here and Now

Embrace a digital customer engagement that supports scalability and a seamless, secure journey for the customer, as well as a release of pressure on the call center workforce.

There is important information you can capture today that you may not have chosen to in the past. When the initial tsunami of calls begins to subside, you will have a large book that requires work. Collections, risk and operations executives will require that data to help them:

  • Understand the differences between COVID-19-related debt and non-COVID-related debt
  • Identify the customers that traditional collections risk analytics apply to, and those for whom it is antiquated or redundant
  • Determine the likely return to good financial status by reviewing data such as:
    • Were they in a protected industry?
    • What drove their reduction in income? Was it:
      • Furlough (and if so, with what degree of protection)?
      • Redundancy?
      • Sickness?
    • What has been the true impact on disposable income, and can open banking support and validate the impact?
    • What is their likely return to good trajectory given their household dynamics and industry sector?

No Conclusion Yet (but soon)

The Law Firm of Thomas J Maccari of Boca Raton provides assistance with commercial and corporate debt collection services, lien enforcement, civil litigation and more. Working with our clients across various sectors, we have seen first-hand what best practices in collections looks like today. Give us a call at 561-982-9772 to learn more about how we provide the best solutions to your collection issues, and visit us back here for more tips and solutions to give you the best possible results in the quickest possible time frame.

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