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The State of Debt Collection in Portugal

The COVID-19 pandemic has affected financial institutions worldwide. However, it hasn’t all been bad news. COVID has propelled many financial organisations to invest in innovative technology and to undertake ambitious digital transformation projects to better manage rising non-performing loans (NPLs) and debts. 

With one of the most lenient debt collection standards across Europe, Portuguese financial institutions are currently facing a wide variety of challenges when it comes to recovering their debts. The average day sales outstanding (DSO) currently sits at 69 days while average payment terms are at 66 days. This shows that there is clearly plenty of room for improvement and optimisation of debt collection and recovery processes.

This blog post will examine the current state of debt collection in Portugal. It will delve into how COVID-19 hit Portugal and the impact it had on their financial institutions, how loan moratoria mitigated the upfront impact of pandemic-related disruption, and the biggest challenges that debt collection departments currently face in Portugal.

How COVID-19 hit Portugal and impacted its financial institutions

The COVID-19 pandemic was particularly impactful on Portugal's economy. This is down to the fact that it’s traditionally incredibly reliant on sectors such as tourism, hospitality, transportation, and construction. It is suggested that these sectors alone represent anywhere from 5 - 15% of the country’s largest banks’ portfolios. In other words, the pandemic hit the country’s economy to its very core. 

In a bid to protect the economy and to protect financial institutions, the country rolled out incredibly generous COVID-19 support measures, leading to an increase in total expenditure of €3,2BN by the end of May 2021.

Despite these drastic measures, Portugal’s economy was hit incredibly hard by successive lockdowns - the country experienced a 13.9% contraction in GDP in Q2 2020, and throughout the year, a 7.6% contraction overall.

How moratoria mitigated the impact of COVID-19

Across Europe, loan moratoria have been a saving grace for consumers and financial institutions alike. Portugal is no exception. 

Recent data shows that in Portugal, the total sum of all instalments that have gone unpaid due to COVID-19 related moratorium measures reached an astronomical $13BN as of September 2021. This figure is huge, and it’s one of the largest in Europe. In fact, moratoria have supported 22.2% of total credit - this is the third-highest in Europe, well above the average of 7.5% across the continent. 

Given that over 20% of total loans in Portugal are currently on moratoria (a figure that amounted to $45 billion in February 2021), the country is one of the most dependent on pandemic programs.


However, while this might seem excessive, there are positive signs regarding the country’s overall approach to debt collection. Banco de Portugal data shows that there was a significant decrease in the stock of NPLs across the country’s banking system from 2019 to 2020, from €17 BN to €14 BN. It demonstrates that the country does at least have some established processes in place for reducing NPLs at scale.


It’s clear to see that loan moratoria have protected both banks and consumers from the severe impact of COVID-19 so far. Unfortunately, however, many moratoria ended back in September 2021, meaning financial institutions are soon going to encounter an expected wave of NPLs. Unless they have a rock-solid collections process in place, they might be facing an uphill battle.

Why Portuguese financial institutions must overcome their traditional mindsets

Many financial institutions still aren’t leveraging the full power of digitisation. According to our experience, and from conversations that we’ve had with our customers, the majority still rely on excel spreadsheets to record the repayment history - or they have siloed data across different systems. In other words, collections agents often need to manually edit, compare, and analyse the data themselves. Financial institutions are unnecessarily hampering their ability to recover debts. 

So how can they optimise their dunning processes while creating seamless, digital-first customer experiences from the very first touchpoint to the very last? By leveraging digital-first, cloud-native collections platforms. These offer four key features that Portuguese financial institutions must make use of going forward:

  1. Machine learning (ML)/artificial intelligence (AI)

By leveraging machine learning/AI, collections departments can monitor every single aspect of the collections process. They can hone in on strategies that are truly effective—and focus on these tactics going forward. For example, they can track the percentage of customers who open their emails, click the repayment link, and successfully pay back whatever they owe.

If collections agents know exactly which past-due customers are responding to messages, and which aren’t, they can specifically target those that need more attention moving forward. They can also analyse how well each template/message performed, prioritising those that are truly effective. 

ML and AI help agents fine-tune their outreach strategy. In turn, this leads to an increased recovery rate and lower DSO. 

  1. Account management

Portuguese financial institutions need to stay on top of exactly every single past-due customer. In other words, they need individual case management (or account management) capabilities. That’s why leading cloud-native collections software enables agents to see all must-know information, as well as all conversations that each customer has previously had with debt collection agents.

Agents can dive into their account information, contact information, payment history, and payment schedule. They have total visibility over each past-due customer—meaning no key insight ever goes unnoticed. 

  1. Flexible segmentation

Flexible segmentation allows managers to more easily craft strategies according to each segment (or each individual customer's) behaviour. Using the “If” condition, for example, they can decide to only send out a reminder dunning message if the past-due customer opened the last message but took no action. This condition allows agents to more easily tweak their strategies at scale.

  1. Self-service and custom payment service provider (PSP)

Self-service functionality gives consumers control over their own repayments. They can pay back as much as they can afford, at a time that suits them, on their preferred channel. This increases the likelihood that they will engage in the dunning process—and that financial institutions will receive what they are owed. 

By offering a range of custom PSPs, customers can choose the payment method that suits them—whether that’s using their debit card, PayPal account, Apple Pay, Klarna, Paysafe, or Wirecard.

Prepare for the challenges that lie ahead

Portuguese financial institutions must not underestimate the challenges that await them. With a significant portion of the country’s credit having been in moratoria, and the fact that many moratoria ended in September, financial institutions must quickly find ways to successfully recoup all that they are owed.

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