Rapidly growing businesses require robust tools to help them scale, no matter the department. Adoption of the right technologies is a necessity for expansion, long-term health and, in the case of collections operations, risk mitigation–particularly in the midst of a challenging financial landscape.
Companies are adopting automated solutions at an ever-increasing rate, leveraging robust data analysis methods to develop informed collections strategies and engage customers throughout the credit journey.
By investing in collections management software, CFOs can increase efficiency while optimising collections rates. Consider the following key stats:
- 79% of companies surveyed in TransUnion’s report currently use collections management software;
- According to TransUnion, “Larger companies, in particular, have deployed a range of tools and technology.”
- The collections management software market is growing rapidly and will be worth an estimated $1.67BN by 2027.
Which companies should consider investing in collections software, and why?
Collections software is suitable for companies of any size—but CFOs stand to benefit by choosing providers that offer various modules to adjust to different company profiles. By doing so, businesses can ensure their solution is ideally suited to their operations and collections processes .
Companies that only handle a small volume of claims could theoretically collect those debts manually or hire someone else to do it. However, the optimal approach is often to apply collections software that first offers simple modules in the first instance, before providing more complex modules as growth takes hold–to handle larger volumes.
The earlier companies invest in collections software, the more control they will have over their collections information. Businesses that adopt collections technology early on can delve into their customers’ historical data and gain information on how they behave. CFOs (and their collections teams) can then use these insights to create more effective dunning strategies moving forward.
How does investing in collections software help financial institutions sell their debts?
When a consumer can’t repay a creditor, the money becomes classified as unrecoverable (typically termed “bad debt”), and financial institutions might decide to write it off. The sum moves from being classified as an asset in the “Accounts Receivable” category to a debit in the "Allowance for Doubtful Accounts'' column, which balances the bad debt in the company’s books.
So why exactly do financial institutions write off debts?
Firstly, writing off monies owed allows companies to reduce their tax liability, as debts in the accounts receivables column are still considered an asset and are taxed as such. Secondly, companies can still pursue the debt even after they’ve written it off–or they can sell it to third parties to gain some profit. And thirdly, companies can release the provisions they’ve set aside and use this released capital for other purposes.
The right collections management software gives CFOs complete control over their institution’s collections data. This data allows them to continually evaluate their debt portfolio and adjust the provisions they’ve set aside on an ongoing basis.
Better still, digital collections systems provide both financial institutions and potential debt buyers with full transparency over their debt portfolio. Buyers gain a clear overview of their debts, meaning they can calculate their potential margins based on more accurate information. Plus, automated processes save significant time in the debt purchasing process, as the data is well organised. This reduces the buyer’s time to value, expediting the debt transfer. A win-win for both parties.
The benefits of investing in a cloud-native collections software
There are 5 primary benefits financial institutions gain when they invest in cloud-native collections software:
1. No more hardware maintenance
On-premise systems are time-consuming to install and labour-intensive to maintain. In fact, an estimated 80% of all IT spending goes towards maintenance and only 20% on new projects, tools and initiatives. Conversely, cloud-native collections software requires no equipment or ongoing maintenance. The software vendor seamlessly handles all updates on the financial institution’s behalf.
2. Compliance with global regulations
Leading collections management software offers compliance as standard, whether according to General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), or other cross-national regulations. CFOs and their institutions can guarantee ongoing compliance without added expense or resource allocation.
3. Access to collections data wherever, whenever
Employees can log into cloud-native collections software wherever and whenever—whether they are in the office or working remotely. This boosts the collections team’s efficiency and productivity. Agents can also access critical customer data, set up complex dunning strategies, and analyse their performance at all times.
4. Reduced postage costs
Snail mail is often expensive and ineffective–with no guarantee or means to track whether past due customers have read your message.
By implementing collections management software, financial institutions can focus on digital communication methods that are quicker to send, easier to analyse, and more cost-effective.
5. Independence from IT departments
Cloud-native collections management software often features easy-to-use drag-and-drop payment setups and content builders. Traditionally, if agents wanted to create or edit landing pages and dunning messages, they would need to contact their IT department for help. This approach is overly time-consuming and hampers the collections team’s productivity. But by leveraging easy-to-use content builders, agents can create and modify payment pages and dunning messages without needing external assistance.
The case for increased focus on collections
In an uncertain economic landscape, CFOs are under increased pressure to optimise collections processes and boost efficiency.
To foster a reduction in past due customers, businesses require data-driven solutions–both to measure their strategic effectiveness and better understand the repayment lifecycle.
Since implementing receeve’s collections management software, Pactum has achieved a:
- 15.1% increase in cash collection
- 68% decrease in outbound calls
- 9.1% increase in 7 days past due (DPD) customers' payback
To learn more about digitalisation for collections operations, read our article: What Every CFO Should Know About Their Collections Department