Earlier this month, the BBC announced it will be launching an investigation into how its licence enforcement officers collect fees. Here, Lloyd Birkhead, managing director at Grosvenor Services, part of specialist outsourcer Echo Managed Services, discusses why businesses should seek to strike a balance between effective recovery of debt and the fair treatment of customers.

‘Ethical debt collection’ might sound like a paradox to some but it needn’t be. For us at Echo, experience tells us that when it comes to the recovery of money, quite often it can be just another step in the customer journey. Recognising this is more important now than it has been since the recession, with household debt levels higher today than they were in 2008. Businesses need to ensure their debt recovery practices are fair and considered or risk damaging relationships with customers. So where are companies going wrong?

The current shortfalls of businesses

Debt recovery is a lot more common than many of us realise – research has found that over two-thirds of adults will, at one point in their lives, end up in arrears. This means that getting debt recovery right is absolutely crucial, yet some businesses still seem to be falling short.

Inaccurate billing is a major issue for companies when it comes to the recovery of monies owed. Issues such as double-charging or holding outdated / incorrect customer information are commonplace. This can often plunge customers into debt involuntarily, or lead to ‘protest debt’ – the refusal to pay, usually by more affluent customers. These mistakes frustrate customers and jeopardise their loyalty, while at the same time threatening a company’s reputation.

Aside from billing issues, debt collection that is overly overly-zealous, which includes excessive contact, was found in our ‘Counting the cost of debt recovery’ report to leave customers feeling both frustrated and harassed.

And the consequences of poor debt recovery practices?

Getting debt recovery wrong is costly on two fronts:

  1. Financial implications
Companies that fail to recover debt fairly can expect almost 20% of their customers to delay payments, on purpose, as punishment. In addition, more than 50% of customers will consider switching to a competitor when delivered a poor service – impacting the bottom line.
  1. Impact on reputation
They say “a good reputation is more valuable than money”, and with our research finding over 40% of customers tell others when they have a bad experience with a company, the consequences on reputation are clear.

Debt is often only a temporary state, so companies should be looking to balance the short-term payment gain against the more long-term value of the customer – or end up losing the custom altogether.

How businesses can improve their debt recovery approach

It’s never too late for businesses to recognise the error of their ways and adapt more customer-friendly debt recovery practices. Here are our thoughts around the top ways to improve:

  1. Open and proactive dialogue with customers
Not all debt is created by the mistakes of businesses so it’s important to recognise when it’s caused by circumstance and assist customers in the best way possible. To lessen the likelihood of a payment being missed, or a customer not having enough money in their account to cover a payment, companies should look at sending out an alert, either via SMS or text, with the amount and date a payment is due. This will build trust and may prevent potential debt issues before they even arise. For vulnerable customers, or those with affordability issues, putting sustainable payment plans in place or offering access to free, impartial advice is an effective debt recovery practice that puts customers first.
  1. Using doorstep visits effectively
Despite doorstep visits often considered a last resort, research has actually shown them to be really useful in identifying customers with vulnerability and affordability issues. They help businesses reconnect with customers they may struggle to engage with and have been found to increase the likelihood of repayment with around 50% of customers. Additionally, doorstep visits can help identify if a property is empty or if new occupiers have moved in – ensuring a company ceases to send letters and attempt to make contact which can be costly.
  1. Offering choice with communication
Giving customers a choice when it to comes to how they want to be contacted is really important for driving engagement. Each customer has their own individual preferences – research has found that while two-fifths of customers prefer to be contacted via SMS or email, the majority would still rather receive a call or letter.
  1. Agents with the knowledge and empathy to help
Frontline staff who deal with customers are the face of your company and so they need to have the knowledge to give practical advice, while having an empathetic ear when discussing sensitive issues such as debt.

An effective debt recovery strategy will be customer-focused and ensure that money is retrieved in a fair and ethical manner. With rising household debt, now is the time for businesses to review their current practices and ensure they’re meeting customer expectations. In doing so, they’ll not only enjoy strengthened customer relationships and better engagement, it will literally pay-off too, with more customers being able to repay debts and pull themselves out of arrears.