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3 Major Challenges in Collections and How to Solve Them

Jun 5, 2023

In the debt collection industry, you’re bound to come across certain situations that will leave you with more challenges than solutions. It’s tough enough dealing with delinquent accounts and overdue payments, but when you hit a brick wall during the collection process or spend a lot of time doing tedious manual work, it can be frustrating and time-consuming.

From working through mazes to find the right contact information for debtors to dealing with uncooperative debtors, we understand that it can be a minefield for even the most experienced professionals. But fear not!

In this blog post, we’ll explore three major challenges in debt collection and provide practical solutions to overcome them.

The 3 Top Debt Collection Challenges + Solutions to Overcome Them

Challenge #1: Getting the Debtors’ Contact Information

According to a Thomson Reuters survey on debt collection challenges, the number one difficulty for most collection agencies (62%) is finding the right contact information of the debtors. It is further reinforced by a TransUnion survey which reveals that only 4% of accounts are reached on the first attempt. Most debtors are only reached after 2 to 4 attempts; in 21% of cases, it takes even 5 to 7 attempts. This adds to the time and money lost in contacting your debtor.

Many debtors change numbers, move to different addresses, or don’t have a proper point of contact to reach out to. This means the collectors need to spend hours scouring to find the correct contact information before they even start the debt collection process.

The Solution?

To solve this problem, collection agencies can use customized software specifically designed for debt collection. The software will help them create an automated database of all the debtors’ contact information to easily find the right one with just one click.

The software also helps track their email addresses, social media accounts, and phone numbers. This way, you can send them emails or messages directly from the website without any hassle. Furthermore, the software helps keep track of all those contacts so that you can figure out who has responded and who has yet to receive your message.

Many collection agencies also use smart skip-tracing strategies to find the contact information of their debtors, but you need to make sure to employ only legal practices.

Challenge #2: Creating a Holistic & Consistent View of Data

Data is often scattered across multiple systems and databases, making it difficult for collectors to interact efficiently.

Each system may have different formats for storing information, making it even more challenging to simultaneously access data from various sources. This leads to many duplicates, inconsistencies, and errors in the databases, making it very hard for collectors to get a holistic view of their portfolios and make the right decisions at the right time.

The Solution?

The solution is to have a single source of truth for data. If the collection agencies can access all the relevant data in one place, they can easily analyze it and make informed decisions about what needs to be done next.

An example of this is account management software allowing you to track your customers’ information across multiple channels such as email, phone calls, social media, and more. This way, you can get insight into how they interact across these different touchpoints and use this information to improve and customize your communication.

Such a unified, centralized, and holistic view of debtors’ data will allow collectors to:

  • Maximize returns: Collection agents need accurate information about their debtor accounts to understand the flow of money. This will allow them to optimize their collection strategies by focusing on accounts most likely to bring high returns.
  • Consolidate information sources: Data often lives in many different places, so collectors may need to consolidate information from multiple sources before using it for analysis or reporting on collection activities.
  • Adjust collections strategies based on debtor behavior: With better visibility into how debtors behave and respond to collector communications, agents can adjust strategies accordingly to increase the chances of getting back more money at lower costs.
  • Improve productivity: When collection agents have access to all the relevant data, they can make more informed decisions about collections strategies, allowing them to spend more time working on high-value opportunities instead of gathering information from multiple sources.

Challenge #3: Communicating Through the Right Channels

The primary challenge for collections departments is getting the customer to pay. But when they’re still using outdated collection strategies, it leads to sub-par results.

According to a recent TransUnion survey, 94% of collection agencies use letters to contact customers, and 87% use the telephone. Only 31% use text messages, 15% use ringless voicemail drop, and 13% use chatbots, digital assistants, or other AI tools.

But nowadays, debtors prefer the non-intrusive way of communication like automated calls, messages, emails, and chatbots over human interaction. This allows them to take time to think over their options and choose a better way to pay off their debts — sometimes even with more convenient payment options than before — without actually talking to a human. In fact, 50% of debtors contacted through letters paid off their debts compared to 77% reached through text messages. This number goes up to 92% when contacted through mobile pop-ups and online banking.

But many collection agencies don’t use the right channels to communicate with their customers and only rely upon traditional means, leading to high rates of no response and low recovery rates.

The Solution?

Many companies have turned to AI-powered debt collection solutions to increase the effectiveness of their late payment collection efforts. These tools provide an opportunity for companies to develop a better understanding of their customers and make data-driven decisions about how best to collect delinquent accounts while minimizing negative customer experiences.

At Capital Recovery, we use Interactive Voice Response (IVR), chatbots, and other similar non-intrusive communication channels to establish the first point of communication with the debtors and recover debt with minimal efforts and costs.

Contact our team to know how we can help recover your debt quickly & efficiently.