Debt recovery is an ancient practice. It has been around for as long as debt has existed. Earlier, debtors who were unable to pay the amount owed served debt bondage as payment. There have always beenrules governing debt collection. Debt forgiveness was common among the Jubilees. Both early Christians and Muslims had restriction on the interest to charge on a loan. There is no doubt that debt collection has earned a poor reputation with loan sharks and predators lurking in the industry. Cases of victimization have been reported but the industry has improved tremendously. Here is how
Abusive, unfair and deceptive are some of the words used to describe debt collection. Despite each country having its own set of regulations, the complaints are the same. The development of tighter legislation to guide the debt recovery process has led to the protection of debtors and more legal avenues to pursue debts. The laws not only seek to regulate debt collection agencies but also guide the behaviour of debtors. Due to the strict rules and regulations, credit companies and debt collection agencies have been forced to re-evaluate their debt collection strategies and advance their invoicing systems. After all, no one wants to be on the wrong side of the law or end up with displeased clients.
In light of the tighter regulations on debt collection, most companies have developed strategies to recover debt internally. First-party agencies act as departments within companies and their work is to attempt debt recovery before handing debt accounts to third-party agencies. They are party to the original contract and conduct all the initial efforts towards debt recovery. Collection strategies used by first-party agencies involve sending reminders through email, letters or phone calls. Moreover, companies negotiate with debtors to reach amicable solutions for debt recovery. Only when all first-party agency efforts fail, do companies forward the task of debt recovery to third-party agencies.
Outsourcing Debt Collection
As debt collectors redeem their name, debt recovery efforts are increasingly shifting to third-party agencies. Many companies outsource debt recovery to third party agents due to the cost of pursuing a debt. The process involves intense communication and legal processes that are not only costly but also time-consuming. For a portion of the value of the debt, debt collectors take on the task of recovering a debt. In some cases, creditors sell debts to debt buyers for a lower value and collect instant revenue.
Automation and Digitization
Modern debt collection relies on digital communication. Gone are the days of knocking on debtors’ doors,now reminders, customer statements and payment notifications are sent via email or SMS. Letters are also important but it’s up to the borrower to select the preferred choice of contact. Automation has also made communication seamless and timely. One of the trends in the debt recovery industry is the preference of customersfor computers to human beings. Many debtors would rather not suffer an uncomfortable conversation with a call centre agent. Since automated voice reminders are pre-recorded, debt collection agencies can stick on the right side of the law. The system has reduced the number of harassment accusations.
Digitization has seen the optimization of work distribution and reduced processing time. Moreover, disputed debts are identified automatically and reminders are delivered seamlessly. Debtors also enjoy flexible payment options through electronic payment systems. Technology has also minimized the possibility of mistakes and improve debt collection agency compliance with regulatory requirements.
Financial information can be subjected to data analytics to improve decision making. Predictive modelling and data analytics can help creditors identify potential defaulters early. As a result, companies can reduce bad debts and minimize the cost of debt recovery. By analysing credit histories, credit limits, and outstanding loans, debt collection agencies can flag delinquencies.
The world of debt recovery has seen numerous developments. Although it’s not perfect, the new trends are a testament to how much the industry has improved. Harassment reports have reduced tremendously and debt recovery has become more efficient. Debtors, debt recovery agencies and creditors are all enjoying the fruits of the technological, legal and financial developments seen in debt recovery. More is yet to be done but the industry is moving in the right direction.