How Financial Services Companies Can Strike a Balance Between Effectively Recovering Debt and Treating Customers Fairly

By Lloyd Birkhead, managing director at Grosvenor Services, part of specialist outsourcer Echo Managed Services

Following the global economic crash of 2008, the financial services industry has been faced with increased scrutiny – particularly when it comes to its debt collection practices. It’s a widely-held view that the industry’s approach to recovering monies owed can often be unethical,particularly when compared to other industry sectors known to take a more customer-centric approach.

In fact, just last month HSBC was ordered to pay £4m back to customers who were subjected to unreasonable customer fees charged during debt collection by the Financial Conduct Authority (FCA).

With household debt hitting pre-recession levels, and many struggling to keep up with payments, it’s important that companies within the financial industry review how they conduct debt recovery – engaging in a reasonable and fair manner – or they could not only face the wrath of the FCA, as above, but also damage valuable customer relationships.

So where are companies going wrong?

In the UK,63% of adults have experienced some form of debt recovery – whether that’s as a result of defaulting on mortgage repayments, or missing payments on a bank loan or a credit card. Given then that many of us will at some point in our lifetime be left in arrears, sometimes unintentionally, it becomes clear that effective debt recovery techniques are imperative – but not everyone is getting it right.

Research tells us that a major shortfall of companies, when it comes to debt and debt recovery, is alarmingly,inaccurate billing. Billing issues could be getting a customer’s details mixed up with another’s, double-charging, or failing to update balances in real-time when a repayment has been made. When a billing error occurs, it can plunge poorer customers into debt involuntarily or lead to ‘protest debt’ – that is the refusal to pay – amongst more affluent customers. Either way, the customer faces a poor experience whilst the company loses out. Acknowledging these issues when they happen, learning from them and ensuring processes are changed accordingly is important to avoid repeating the same mistakes.

When bad practices are employed, expect customer frustrations to heighten – instances when customers have to repeat themselves constantly, to a company to whom they’re paying, is one such example.Our ‘Counting the cost of debt recovery’ report also found overly-zealous approaches to debt collection in terms of the number and tone of communications to be a major bugbear of customers – leading to feelings of harassment and embarrassment. This shatters customer trust and loyalty and makes future contact more difficult.

The cost of bad debt recovery practice

Poor practice is damaging to a company both financially and in terms of its reputation.

When a customer is exposed to poor recovery practice, it can hinder the actual retrieval of the monies owed – research shows us that almost a fifth of consumers would deliberately delay a payment in order to punish a company for the delivery of poor service. Further to this, over half of consumers would switch their service provider altogether if they were subjected to poor debt recovery techniques.

Additionally, over two-fifths of customers who face poor practice recount the experience to others – using the word of mouth effect to further damage the company’s reputation.

It’s important to recognise debt as part of the customer journey – it may just be a temporary setback. It’s crucial to strike a balance between the long-term value of a customer against a more short-term payment gain. Failing to strike such a balance may cause a customer to switch to a competitor– the last thing anyone needs in the current economic climate.

Ways to improve

While we’re clear about the detrimental effects bad debt recovery practices can have, it’s never too late to review the practices currently in place and make improvements – which should, in theory, increase the likelihood of debts being recovered fully and improve customer relations.

Be proactive when it comes to affordability and vulnerability issues

Of course not all debt is due to poor practice and mistakes made by businesses –  much of it is due to customer circumstances. With household debt on the rise again, it’s becoming increasingly important for those operating within the financial services sector to be proactive in identifying and addressing affordability and vulnerability issues. Making concerted efforts to take into account the vulnerabilities of those who are in debt, and giving them access to free impartial advice and affordable, sustainable repayment plans, is imperative to help guide them out of debt.

A flexible approach to communication

When it comes to debt recovery, offering flexibility and choice in communication channels is vital to drive engagement. Research shows us while the majority of consumers say they react best to a phone call or a letter, almost a quarter (24%) of consumers prefer email or SMS contact.

As well as offering a range of communication channels, it’s important to tailor contact to the customer’s profile – i.e. if the customer works full-time during office hours, it’s probably not a good idea to give them a call then. Instead, sending a text or an email might be the best approach. It’s all about having a deep understanding of each customer and their circumstances and deploying due skill, care and diligence to tailor approaches accordingly.

Knowledgeable and empathetic agents

Debt can be a sensitive issue which is why front-line agents who have direct contact with customers need to be knowledgeable, empathetic and have a customer service mindset – able to offer practical advice whilst also listening and taking into account each customer’s unique situation and needs.

Getting doorstep visits right

Visiting the door of a customer is often considered a last resort, however research has found that doorstep visits can be effective in identifying those customers who are vulnerable or struggling with affordability issues, as well as helping reconnect a company with customers they’ve previously struggled to engage with. Furthermore, doorstep visits can increase the likelihood of repayment – with half of consumers either making an immediate payment or agreeing to an affordable payment plan in such instances. Doorstep visits bolster customer engagement while building and strengthening customer trust.

As borrowing levels continue to increase, and with household debt on the rise once again, it’s important for financial services firms to review their practices now to ensure they’re using the most effective practices to retrieve monies owed, whilst keeping customer interests at the forefront of what they do. As research shows, treating customers fairly will boost satisfaction, strengthen loyalty and create added value to the customer journey. Failure to do so can lead to punishment from regulators, plunge customers further into arrears and cost a company in the long-term, not only financially but in terms of its reputation too.

By Lloyd Birkhead, managing director at Grosvenor Services, part of specialist outsourcer Echo Managed Services

Following the global economic crash of 2008, the financial services industry has been faced with increased scrutiny – particularly when it comes to its debt collection practices. It’s a widely-held view that the industry’s approach to recovering monies owed can often be unethical,particularly when compared to other industry sectors known to take a more customer-centric approach.

In fact, just last month HSBC was ordered to pay £4m back to customers who were subjected to unreasonable customer fees charged during debt collection by the Financial Conduct Authority (FCA).

With household debt hitting pre-recession levels, and many struggling to keep up with payments, it’s important that companies within the financial industry review how they conduct debt recovery – engaging in a reasonable and fair manner – or they could not only face the wrath of the FCA, as above, but also damage valuable customer relationships.

So where are companies going wrong?

In the UK,63% of adults have experienced some form of debt recovery – whether that’s as a result of defaulting on mortgage repayments, or missing payments on a bank loan or a credit card. Given then that many of us will at some point in our lifetime be left in arrears, sometimes unintentionally, it becomes clear that effective debt recovery techniques are imperative – but not everyone is getting it right.

Research tells us that a major shortfall of companies, when it comes to debt and debt recovery, is alarmingly,inaccurate billing. Billing issues could be getting a customer’s details mixed up with another’s, double-charging, or failing to update balances in real-time when a repayment has been made. When a billing error occurs, it can plunge poorer customers into debt involuntarily or lead to ‘protest debt’ – that is the refusal to pay – amongst more affluent customers. Either way, the customer faces a poor experience whilst the company loses out. Acknowledging these issues when they happen, learning from them and ensuring processes are changed accordingly is important to avoid repeating the same mistakes.

When bad practices are employed, expect customer frustrations to heighten – instances when customers have to repeat themselves constantly, to a company to whom they’re paying, is one such example.Our ‘Counting the cost of debt recovery’ report also found overly-zealous approaches to debt collection in terms of the number and tone of communications to be a major bugbear of customers – leading to feelings of harassment and embarrassment. This shatters customer trust and loyalty and makes future contact more difficult.

The cost of bad debt recovery practice

Poor practice is damaging to a company both financially and in terms of its reputation.

When a customer is exposed to poor recovery practice, it can hinder the actual retrieval of the monies owed – research shows us that almost a fifth of consumers would deliberately delay a payment in order to punish a company for the delivery of poor service. Further to this, over half of consumers would switch their service provider altogether if they were subjected to poor debt recovery techniques.

Additionally, over two-fifths of customers who face poor practice recount the experience to others – using the word of mouth effect to further damage the company’s reputation.

It’s important to recognise debt as part of the customer journey – it may just be a temporary setback. It’s crucial to strike a balance between the long-term value of a customer against a more short-term payment gain. Failing to strike such a balance may cause a customer to switch to a competitor– the last thing anyone needs in the current economic climate.

Ways to improve

While we’re clear about the detrimental effects bad debt recovery practices can have, it’s never too late to review the practices currently in place and make improvements – which should, in theory, increase the likelihood of debts being recovered fully and improve customer relations.

Be proactive when it comes to affordability and vulnerability issues

Of course not all debt is due to poor practice and mistakes made by businesses –  much of it is due to customer circumstances. With household debt on the rise again, it’s becoming increasingly important for those operating within the financial services sector to be proactive in identifying and addressing affordability and vulnerability issues. Making concerted efforts to take into account the vulnerabilities of those who are in debt, and giving them access to free impartial advice and affordable, sustainable repayment plans, is imperative to help guide them out of debt.

A flexible approach to communication

When it comes to debt recovery, offering flexibility and choice in communication channels is vital to drive engagement. Research shows us while the majority of consumers say they react best to a phone call or a letter, almost a quarter (24%) of consumers prefer email or SMS contact.

As well as offering a range of communication channels, it’s important to tailor contact to the customer’s profile – i.e. if the customer works full-time during office hours, it’s probably not a good idea to give them a call then. Instead, sending a text or an email might be the best approach. It’s all about having a deep understanding of each customer and their circumstances and deploying due skill, care and diligence to tailor approaches accordingly.

Knowledgeable and empathetic agents

Debt can be a sensitive issue which is why front-line agents who have direct contact with customers need to be knowledgeable, empathetic and have a customer service mindset – able to offer practical advice whilst also listening and taking into account each customer’s unique situation and needs.

Getting doorstep visits right

Visiting the door of a customer is often considered a last resort, however research has found that doorstep visits can be effective in identifying those customers who are vulnerable or struggling with affordability issues, as well as helping reconnect a company with customers they’ve previously struggled to engage with. Furthermore, doorstep visits can increase the likelihood of repayment – with half of consumers either making an immediate payment or agreeing to an affordable payment plan in such instances. Doorstep visits bolster customer engagement while building and strengthening customer trust.

As borrowing levels continue to increase, and with household debt on the rise once again, it’s important for financial services firms to review their practices now to ensure they’re using the most effective practices to retrieve monies owed, whilst keeping customer interests at the forefront of what they do. As research shows, treating customers fairly will boost satisfaction, strengthen loyalty and create added value to the customer journey. Failure to do so can lead to punishment from regulators, plunge customers further into arrears and cost a company in the long-term, not only financially but in terms of its reputation too.