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Does Your Collections Software leverage the Full Power of AI

We're now beginning to see the financial aftermath of the Covid-19 pandemic. Loan moratoria and expansive government stimulus efforts are ending, which has pushed debt collection into the limelight. It’s more important than ever for collections departments to perform optimally, using all available technology at their disposal. 

Consider the following statistics:

  • European debt-to-income ratio increased to 97% in Q3 2021 (up from 94.6% one year earlier). 
  • It’s therefore unsurprising that 79% of collections organisations have invested in collections management software.
  • Yet 49% still lack the ability to let customers self-cure their debts by setting up recurring payments. 

It’s clear to see that debt is on the rise, and that collections organisations are embracing technology to help them recoup all that they are owed. But are they leveraging the full power of artificial intelligence (AI)?

This blog will examine where collections organisations currently stand when it comes to technology adoption. Then, it will outline the 5 specific benefits that they can gain from leveraging the full potential of AI within their operations.

A retrospective look at the collections industry in 2021

Collections departments have on the whole embraced technology to become more productive and increase their performance. As of 2021, 79% of all collections departments used collections management software, while 74% used online payment portals.

adoption of debt management technology
Source: Transunion

This is a good sign. Collections management software provides businesses with a single source of truth, meaning they can run their entire collections operations from one place. Collections professionals can access all key customer data, devise dunning strategies, and see their results in one tool. They can create unified, data-driven strategies without having to switch back and forth between tools.

Online payment portals, meanwhile, make it easier for customers to pay collections departments back. They don’t have to wait in long call queues to speak to an agent. Instead, they can simply hop online and sort out their own repayments.

However, only 51% of collections departments have self-service technology that allows customers to set up recurring auto-payments—while 30% lack any type of self-service technology. This shows that collections departments aren’t leveraging technology to its fullest extent. 

Source: Transunion

There are two reasons why self-service will add value to companies.

  • First, letting customers self-serve decreases the amount of work that collections departments themselves need to do—thereby increasing productivity.
  • Second, customers like being able to handle their debt themselves. They don’t want to have to speak to a stranger about their finances. Instead, they want to be in complete control without having to get anybody else involved.

With self-service functionality, they can pay back what they can afford, on their preferred channel, at their preferred time. Nevertheless, a massive 94% of collections departments still rely on mailing dunning letters (despite them being largely ineffective) and 87% rely on live agents to help customers repay what they owe.

communication methods in collections industry
Source: Transunion

In 2022, this is completely unnecessary and illogical. AI and machine learning (ML) can automatically handle a wide range of tasks more efficiently than people can. By not having the right software that leverages the power of AI and ML, collections departments are unnecessarily making life harder for themselves.

5 ways AI can help cut collections costs and increase revenue

Let’s explore the 5 specific ways that collections departments should use AI to slash expenses while increasing their bottom line. 

  1. Send out automated messages

Collections agents can use AI to automatically send past-due customers dunning messages across a range of channels. Rather than having to spend time, energy, and money on posting direct mail through customers’ doors, they can instead simply automate the process. Best of all, these messages are completely free. 

  1. Let customers self-cure

With AI-based collections management software, customers can schedule their own repayments online using their preferred payment service provider (PSP). They can guide themselves throughout the process of repaying their debts without agents having to walk them through the journey. This means that agents can instead use their time to focus on high-risk, high-value customers. 

  1. Customise customer repayment journey

An AI-based collections software enables customers to create custom repayment journeys for every segment. Agents and collections teams should be given complete control over their customers’ journeys. With strategy builders, they can set up multiple different strategies for each of their customer segments, using “if” conditions to tailor their approach according to their customers’ behaviour. If a customer doesn’t open an email, for example, you can create a workflow to send them an email reminder a few days later and a Whatsapp SMS the following week. 

  1. Prioritise the best dunning messages

The multi-armed bandit (MAB) algorithm uses automation to automatically fine-tune your dunning approach. It prioritises templates that have the best success rate, as well as sending out messages at times that have historically been the most effective. With the MAB algorithm, agents don't even need to analyse their department’s performance data. Instead, they can simply trust the algorithm to put their data-driven insights to good use. 

  1. Analyse customer behaviour

All-in-one dashboards reveal everything that agents need to know about their dunning performance. Collections managers can understand how customers have engaged with their efforts, analysing their open rate, click rate, payment attempt rate, success rate, payment failed rate, and reaction time. This allows collections leaders to quickly understand their key performance metrics (without having to conduct any analysis themselves). They can quickly devise new strategies on the go, adjusting their approach as necessary. 

It’s time to put AI to good use

AI is a collections superweapon. It allows collections team to automatically optimise their dunning approaches, reducing time and effort while increasing repayment rates. Unfortunately, however, only a small percentage of departments are currently using AI to its fullest potential. 

This has to change. By implementing AI-powered, cloud-native collections management software, collections teams can increase their productivity and performance—while also providing a superior customer experience. 

It’s therefore crucial that collections departments partner with the right software vendor. Want to explore how you can leverage the full potential of AI in collections software? Take to us to know more.

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