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How Collections Software helps Customers solve their Insolvency

The financial impact of the COVID-19 pandemic has yet to be fully felt. Government subsidies have by and large propped up those that are struggling financially, whether individuals or businesses. But these subsidies won’t continue forever—and an expected storm of insolvencies could be on its way.

  • According to Bruegel, a Brussels-based economic think tank, “Measures in major economies have protected companies from COVID-19 related insolvency, but have also protected weak firms.”
  • It’s expected that in 2021 there will be 50,000 business insolvencies in France alone, 23,180 in Germany, and 20,250 in the UK.
  • Over 80 million Americans are currently struggling to pay their bills (and so are at risk of becoming insolvent in the near future). What’s more, 38% of Europeans are worried about being able to pay their bills.

If individuals become insolvent, they might end up losing their properties which could change their lives completely. If a business becomes insolvent, it might have to cease trading and its employees would then lose their jobs. And if a financial institution’s past-due customers become insolvent, they won’t be able to repay their debts.

This blog examines the difference between insolvency and bankruptcy before explaining how implementing collections management software at an early stage can help prevent insolvencies from occurring further down the line.

Insolvency versus bankruptcy

Insolvency and bankruptcy are often used interchangeably. But while the two are definitely linked, they’re not exactly the same—so what’s the difference?

In essence, insolvency refers to when an individual or company can no longer pay its financial obligations (for example, bills or debts). Bankruptcy, on the other hand, is a court order that determines how insolvent people or businesses will pay back what they owe, such as by selling off their assets. So if a company or individual is insolvent for too long, they may well become bankrupt.

How collections management software can help

Digital-first collections software adds value throughout the entire collections experience. It isn’t just a tool that collections agents use to manage the dunning process. It can also revolutionise how past-due customers feel (and how quickly they pay up).

Let’s dive into 4 of the most important functionalities of future-proofed collections management software, outlining how it can help prevent insolvencies at an early stage and increase repayment rates.

1. Self-service functionality

It’s important for past-due customers to feel in control of their debt. Traditionally, financial institutions have hounded past-due customers with endless letters through the door or phone calls. They’ve told customers to pay up a certain amount, at a certain time. But this approach doesn’t actually work.

When past-due customers aren’t in control, they might be prone to “reactance”—a psychological phenomenon where they purposefully refuse to engage in the dunning process in order to feel like they’re in control of their own debt. In other words, the more financial institutions try to force them to pay up, the less likely they are to actually do so.

Self-service functionality, on the other hand, gives consumers total control over their debt. They can pay up whatever they can afford at a time that suits them. They can even pick their preferred method of repayment and handle the entire process without needing to speak to another person at any stage. Self-service functionality transforms the collections experience, resulting in far higher repayment rates compared to traditional methods.

2. Personalised approaches

We all like to be treated as individuals. When it comes to collections, however, this is even more important than usual.

Every past-due customer’s unique financial context tells the story behind why they’re in debt, how much they owe, and why they haven’t repaid it yet. So when you send out generic, one-size-fits-all messages, this makes them feel like you don’t even understand their situation.

Tailored communication, on the other hand, shows that you genuinely understand (and care) about their individual situation. By sending out dunning messages on their preferred channel and using the messaging they resonate with, you’ll drastically increase the likelihood that past-due customers will engage in the collections process.

3. Online payments

We live in a digital world—and online is the new in-person. Nowadays, we can buy groceries, speak to colleagues on the other side of the world, and apply for jobs online. So if financial institutions want to prevent loans from becoming non-performing (and help prevent mass insolvencies), they should provide online repayment options for their past-due customers.

This is a no-brainer—especially for younger consumers who do everything online using mobile devices. That’s why collections software with a flexible online payment feature is essential to every financial organisation. It allows you to choose any payment method or payment service provider (PSP) and builds a customised collections experience for your customers.

4. Case management

We’ve already spoken about the need to treat past-due customers as individuals. But this extends beyond communication alone—you also need to analyse each customer as an individual. With case management, you can dive into each past-due customers’ specific financial history, personal context, active claims, the amount they owe, and their current instalment plans.

This allows your agents to prioritise their attention where it’s needed the most. There’s no use in giving two customers equal attention if one is about to become insolvent and the other is in a relatively stable financial situation. By implementing a collections software that boasts case management capabilities, you can notice customers’ financial difficulties at an early stage and work quickly to resolve them.

In other words, you can ensure that past-due customers don’t fall behind their repayments—and potentially even help prevent insolvencies.

React quickly to prevent insolvencies from occurring later on

No financial institution wants its past-due customers to become insolvent. However, it’s important to realise that they have a role to play in helping past-due customers avoid insolvency. By leveraging an end-to-end state of the art collections management software, they can give consumers control over their debt, provide personalised approaches that resonate with individuals, offer up online payment options, and direct their attention towards the cases that need the most help.

This is where receeve comes in. Get in touch to learn more about how our next-generation collections management software can help you resolve more debts and prevent insolvencies in the future.

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