6 Reasons Why Traditional Debt Collection Is a Dead End

Digitalisation and globalisation of markets and services are constantly creating new consumption and payment habits. This leads to complex transaction chains that cannot function without the utilisation of advanced technologies. The transaction volume, and therefore the number of outstanding claims, is continuously growing, especially in the areas of eCommerce, online and subscription-based services. Providers of goods and services often need to operate cross-border with flexible payment options and contract terms in order to stay competitive. In this environment, adequate receivables management becomes an integral part of the business process and can have a critical impact on the liquidity of companies.

Studies on the common payment practices in Europe showed a worrying tendency:

These studies indicate 6 main problems of traditional debt collection practices:

1. Analog communication

The communication with debtors as well as with creditors takes place via outdated channels (mainly by post) and often uses an incomprehensible jargon, which highly extends the processing time.

2. Location-based business processes

Traditional collection practices can barely keep pace with the boom of the transnational eCommerce and the digitalisation and globalisation of services. Most of the collection service providers are still highly dependent on their location and offer consultancy on-site at limited office hours.

3. Manual processing

Manual data processing often leads to errors that are difficult to control and fix. The responsible debt collection clerks are overwhelmed with the increasing amount of the receivables and can hardly offer individual support to the debtors. The case processing can even come to a standstill once the debtor is abroad and the information and processes need to be adjusted to the local requirements.

4. Outdated software and complicated data exchange

More than 80% of all debt collection companies still use software tools that were developed in the 90s and can hardly be integrated into complex technical infrastructures and multichannel processes of modern business models. The result is performance issues and lack of integration, especially for business with international sales markets.

5. Unprofessional business practices

Legally incorrect practices are widely used, like disregard for the amount of collection fees set by law or non-compliance with consumer rights such as notice periods, cancellation and revocation rights, etc. Furthermore, morally questionable practices are sometimes used in the operation process itself, such as threatening phone calls, constant harassment or regular violations of data protection regulations. Under these circumstances, debtors feel intimidated and even “cheated” by debt collection actions, which on the other hand diminish the success of customer recovery efforts of the creditor.

6. Inefficient legal options

High attorney and court fees, insufficient information on the debtors and the increasing number of personal bankruptcy make legal collection uneconomical and lead to a drastic reduction of the success rates when issuing legal proceedings.

The way out: Smart collection online

A successful receivables management strategy should consider the specifics of the underlying business and the users’ ordering and payment habits. It should additionally provide opportunities for rapid and easy communication through digital channels.

The way of doing collections in the digital world builds on the classical virtues…

… and enhances them through technology:

Conclusion

Despite the obvious advantages, many conventional collection agencies still struggle with the adoption of the newly available technological advances.

Switching from analogue and manual processing to digital infrastructures, automation and digital communication has proven to be a slow, tedious, and expensive process for many companies.

Quite different, on the other hand, are the flexible, cloud-based SaaS and PaaS solutions of the FinTech sector, which are increasingly gaining popularity among customers thanks to their fast and cost-effective implementation and quality of services.

So, say goodbye to traditional debt collectors — receivables management is starting to go digital.

Sources:

Atradius (2017): “Atradius Zahlungsmoralbarometer. Internationale Studie zum B2B-Zahlungsverhalten Schweiz — die wichtigsten Studienergebnisse”

EOS (2017):“EOS Survey ‘European Payment Practices’ 2016”

Author: Yuliana Lefedjieva, Corporate Communications Manager

Europe’s leading receivables management platform