Mitigating collections risk with data and behavioural insights

When the sun rose in 2020, no one could have predicted what the world would look like almost a year later. The global pandemic that is COVID-19 has infiltrated every aspect of community life, with millions of people having caught the disease and no country spared from the accompanying social and financial impact.

While Australian governments have done their best to mitigate the fiscal fallout for businesses and consumers, there is no doubt the road to economic recovery will be long and arduous, particularly as stimulus packages wind up and debt pauses in certain sectors come to an end. More and more businesses are increasingly concerned about the best way to navigate their way through what will be a particularly sensitive period for credit collection.

A first step is to build customised and bespoke solutions at scale. This includes leveraging data and analytics to provide behavioural insights into a business’s customers and detailed information that will allow them to make informed recovery decisions and mitigate risk.

It’s all about determining what the best next action is for a customer when it comes to credit collection. Data and analytics allows businesses to understand the type of customer someone is and work towards a better outcome for both parties.

Does the customer have a lack of understanding about their credit situation? Are they living beyond their means and thus sabotaging their ability to meet their payment plan commitments? Are they the kind of person who wants to communicate via telephone or prefers to access digital self-serve options? By utilising a range of predictive analytics, businesses are able to devise treatments that will ensure the best course of action for their customers.

Horses for Courses

One thing that seems obvious but can often be forgotten is every customer’s circumstance is unique and therefore deserves a different approach when it comes to credit management. For example, if a customer has appeared on a business’s credit radar for the first time, there is no need for a strongly worded collections letter to be sent given they may have simply forgotten the payment.

Likewise, data and analytics allows businesses to identify customers who are at risk of credit delinquency and undertake targeted early intervention to help manage them out of their potential woes. This allows resources to be directed appropriately in times of financial hardship.

Conversely, if a customer has rolled through the credit cycle 15 times and the customer has evidenced no intention to pay, it may be necessary for a business to end the relationship with the customer. While a last resort, in coming months more businesses will likely have to consider their duty of care to such customers. While some people believe taking serial debtors off one’s books is a bad thing, failing to cancel that credit card or recover a secured asset can do more harm than good in terms of compounding debts and ongoing financial stress.

At the end of the day, credit and collection divisions exist to help businesses manage their cash flow and as much as many businesses want to help customers battle through tough times, they also need to ensure they survive the tough times themselves. Delicate situations not only require a delicate touch but as much insight into customer behaviours as possible and that is where data and analytics will play a crucial role in lighting the rocky path ahead.

Learn more about credit collection solutions or download our Banking Beyond the Pandemic Whitepaper.