The financial services industry has been faced with increased scrutiny when it comes to debt collection practices. Where are companies in this sector going wrong, and what do they need to do to rectify the situation? Lloyd Birkhead drops by to tell us more.......
It's a widely held and publicised view, that the financial service sector's approach to recovering monies owed can be unethical, particularly when to compared to other industry sectors, many of whom adopt a much more customer-centric approach to debt collection.
With many customers struggling to keep up with their payment commitments, household debt levels in the UK are hitting pre-recession levels. Failing to engage customers in a fair and reasonable manner when it comes to debt recovery may cause companies to face the wrath of the FCA as well as lead to damage to their valuable customer relationships.
Where things are going wrong
Many of us, will at some point in our lives, face being in arrears, sometimes unintentionally. 63% of adults in the UK have experienced some form of debt collection - so it's imperative that businesses are deploying effective debt recovery techniques - but not everyone is getting it right.
Alarmingly, recent research tells us that inaccurate billing is a major shortfall of companies when it comes to customer arrears. Issues include mixing up customer details, double-charging and failing to update an account once payment has been made. Billing errors can place customers into debt involuntarily, or lead to "protest debt" - the refusal to pay. Either way, the customer faces a poor experience and the companies loses out. Companies must learn from billing mistakes and make changes to ensure the same mistakes are not being repeated over time.
Bad debt collection practices lead to frustrated customers. Our 'counting the cost of debt recovery report' found that customers are frustrated by having to repeat themselves constantly, facing overly-zealous approaches to debt collection, and being left feeling harassed and embarrassed. These frustrations shatter customer trust and loyalty and make future contact more difficult.
The true cost of bad practice
Poor practice is damaging both financially and in terms of a company's reputation. It can hinder the retrieval of monies owed - our research shows that a fifth of customers would deliberately delay a payment as a result of bad service. In addition, more than half of consumers would choose to switch their service provider altogether. Two-fifths of customers recount their poor debt collection experience to others - using word of mouth of further damage company reputation.
"At Grosvenor, we recognise debt as part of the customer journey, and in many cases it may just be a temporary set-back for the customer. Striking a balance between the long term value of the customer (who may decide to switch provider) and a more short-term payment gain is absolutely crucial."
How the financial services sector can improve
Treating customers fairly will boost satisfaction, strengthen loyalty and create added value to the customer journey. Financial services firms should review their practices - keeping customer interests at the forefront of all they do.
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