Thanks to inflation and complications following from governement programs, tax season did not go as planned for a lot of collections & recovery executives this year. And companies who do not prepare adequately for the '23 tax season will be disappointed again, warns Shantanu Gangal, CEO of Prodigal.
Tax season is still a few months away, but there’s more pressure than ever on collections & recovery executives to take advantage of this upcoming season.
Why? Because for many companies, the 2022 tax season was a big disappointment.
Delinquencies were high. As they surged in the first quarter of 2022, consumers ushered in April still dreaming of paying down debt with their refunds. But the traditional windfall never came.
In 2022, due to student loan freezes, unemployment relief programs, the expanded Child Tax Credit, and more, many people didn’t receive their traditional “lump sum” tax refunds in the amounts they might have anticipated.
A similar surprise awaited collectors, debt buyers, and creditors. As these groups entered the first tax season post Reg F, expectations were high; after all, risk had increased, and so had investments in omnichannel strategies and QA process changes. Immediate revenue requirements were, naturally, top of mind. Meanwhile, the perfect labor market equation doesn’t exist in consumer finance. Hiring and training effective agents is so challenging that it can make successful operations — and therefore, successful conversations with borrowers and debtors — feel just out of reach.
Plus, inflation hit hard.
When April stormed in, all of these conditions came together to disappoint the ARM industry. Call after call, consumers surfaced themes of inflation and reduced refunds. It was no one’s fault. But we can learn from it. It’s up to collectors and those who purchase or service debt to understand that a repeat of last tax season could be in the cards if they remain unprepared.
Preparing for Tax Season: Prioritize Outcomes
There’s more pressure than ever to make tax season 2023 a success. The competition is stiff on two fronts:
- Collectors have to participate in a race against one another to be the first to contact a borrower at the right time. They must get the proper place in line in order to make additional contact later that remains within regulations, and in order to remain top of mind for the borrower when a windfall does come.
- Collectors compete against the borrower’s other debt types (again, in many ways due to Reg F frequency rules, but also due to the borrower’s financial status), and so must understand the state of that mix, as well as the financial state of the borrower, in general.
These races aren’t won by speed, but by preparation
What does preparation entail? Not only do collections & recovery departments need to find new ways to increase their likelihood of a right-party contact, but they also need to ramp up their understanding of payment intent. And, perhaps most importantly, they need to commit to making every conversation the most effective conversation.
Focus on outcomes and how technology can help
Last tax season made the collection industry’s urgent need for technology more clear than ever. We all saw how critical it is for debt servicers to both create opportunities and then appropriately capitalize on those opportunities.
In theory, it sounds easy: Get someone on the phone and have a productive conversation. But is it really possible to know what makes a conversation successful without accurate, contextual understanding of those conversations — and access to information about their results?
Without the aid of an advanced analytics solution and an optimization strategy that makes use of it, agencies and collections & recovery departments will flounder again in 2023. The plan, then, is to make software decisions now to meet the urgent need.
September and October: Optimization Season
To summarize, in order to avoid a repeat of The Great Tax Season Disappointment of 2022, collectors, debt buyers, and creditors should focus on two elements of their collections strategy, starting right now:
- Maximizing outreach opportunities
- Optimizing the value of every conversation
While it’s never too late to improve your operations, planning and preparing for tax season success can’t be just another headache come January. That kind of pressure will leave it perfectly positioned for deprioritization (again), and you’ll end up continuing to try to get ahead only after you’ve fallen behind.
Instead, plant the seed and stash the acorns today. It’s a lot better to start now if you want to reap rewards in Spring.
Start simple with software selection
Through accessible insights, automated QA, automated call notes, real-time assistance, and other high-value applications of AI and machine learning, you can reach more borrowers at the right time. Then, when conversations do happen, you can easily guide them toward ideal outcomes, making for a better tax season than the last one — all while avoiding the risks Reg F brought to fore.
Note: This article is part of the iA Think Differently series. Written by or recorded with members of the iA Innovation Council, the series of articles and videos showcases thought leadership in analytics, communications, payments, and compliance technology for the accounts receivable management industry.
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