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
- A proactive approach to affordability and vulnerability
Where debt is due to customer circumstance, and not poor practice of business mistakes, being proactive in identifying and addressing affordability and vulnerability issues is crucial. To help guide these customers out of debt, access to free, impartial advice and affordable, sustainable payment plans is imperative. Businesses must not rely on these customers to identify themselves, and must make a concerted effort to be more proactive.
- Flexible communications
To drive customer engagement, being flexible in communication channel and timing is vital. Research shows us that whilst many customers react best to a phone call or letter, 24% prefer email or SMS. Contact channels and timings should be tailored to each customer's profile. A deep understanding of each customer and their circumstances can enable the business to deploy the most effective communications strategy for them, increasing the chances of engagement and payment.
- Knowledgeable and empathetic agents
Front-line agents, who are in direct contact with customers, must of course be knowledgeable and skilled in debt collection. However, what is equally important is a customer service mind-set - taking an empathetic approach and utilising customer service excellence in order to match a solution to each customer's situation and needs.
- Getting it right on the doorstep
Often, visiting a customer at home is seen as a last resort where previous engagement efforts have failed. However, research has found that doorstep visits can be effective much earlier in the debt collection cycle - for example to identify customer vulnerability, affordability concerns or to re-connect with customers. Furthermore, doorstep visits can increase the likelihood of repayment - with half of customers either making an immediate payment or agreeing to an affordable payment plan. Doorstep visits can bolster customer engagement and strengthen customer trust.
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.
Suggested Further Reading
Knowledge Centre: Research
Knowledge Centre: Research
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