Even lenders who had a robust accounts receivable process pre-pandemic must evaluate their processes now, because collecting on past-due debt is much different than it was the last time we were in an economic downturn.
There are at least three areas where lenders can improve, suggests Isaacs’ article:
1. Making accounts receivable fully digital
2. Streamlining your collections process
3. Revamping your credit and collections strategies.
Many lenders used the pandemic as an opportunity to focus on #1 and #2.
#3 is a bit more complicated. In the last two years, lenders have been able to handle early-stage collections in-house because of the relatively low numbers of delinquent accounts and the shift to digital collections. But as delinquencies creep up to and above pre-pandemic levels, it won’t be so simple, and lenders will need to employ a third-party strategy.
Here are three key things you must know if you’re evaluating a third-party collections strategy:
Agencies are modernizing…slowly.
Text messaging is becoming more common, especially at larger agencies, with 37% of all companies reporting that they use text/SMS messaging as of 2022.
This is a challenge for third-party agencies, though, and illustrates how much the industry lags behind other “debt-oriented” industries. For example, according to the report, about half of health insurers surveyed had pay-by-text as a payment option. In 2018.
Agencies are making plans to add SMS/text messaging to their communication channels in the next two years, despite many agency leaders reporting some hesitancy on the part of lenders and creditors to allow their agency partners to use emails and text messages to reach their customers.
Agency leaders also reported that their creditor clients had some misunderstandings about using texts and emails in collections, specifically that email safe harbors are requirements (they’re not) and that express consent is required for texting (it’s not).
For more on the compliance aspects of digital collections, check out Text Messages From Debt Collectors? Not in My Backyard! and Debunking Three Compliance Myths Regarding Texting in Collections & Recovery.
Usually, digital-only collections isn’t the way to go.
There is a difference between digital-first and digital-only collections, and while “digital-only” sounds like the way of the future, the truth is, the best agencies are using a digital-first approach, especially early in the collections process. But, if your agency partner isn’t providing enough human support to consumers, they could be leaving money on the table.
It’s true that consumers want convenience and self-service options, but they also value human interaction. “49% of respondents still want to talk to an agent by phone, and 45% prefer to chat online with a live agent. However, consumers are increasingly less likely to wait on hold for the opportunity to interact with an agent. 35% of respondents said they are willing to wait on hold for 5-7 minutes, and 39% reported that they would prefer to be put in a queue for a call back when someone is available, as opposed to waiting on hold,” according to TCN’s survey, Understanding the Modern Consumer.
The key is providing diverse options to consumers, like online chats, payment portals, text messaging, email, and phone support. And agencies are making gains in this area, according to TransUnion’s whitepaper, Charting the Course and Steering Toward Success: The Collections Industry in 2022, with most agencies reporting that they will invest in chatbots, digital assistants, or other self service tools by 2024.
Your options for partners are shrinking.
Again from TransUnion, it’s clear that as the tech gap widens, the number of third-party collections agencies is shrinking. There are other factors at play, too, like the cost of human resources and the lack of forward flow from 2020 through early 2022. Charge-offs are creeping up, though, and lenders who don’t use a third-party agency, or haven’t made changes to that strategy in a few years, might be surprised by a lack of options.
The good news is that the third-party agencies who are succeeding right now are the best of the best, and they are doing everything it takes to support lenders in their collections strategies.
For more on finding a third-party agency, check out these articles:
Every Thursday, Collections & Recovery sends out an exclusive email packed with analysis on the newest trends in collections strategy, the shift to digital collections, best practices for vendor management, and deep-dives into regulatory and compliance issues that matter to you. The only way to get it is to subcribe.