Digital debt collections have become a powerful tool for companies to recover debts more efficiently, as they now have unprecedented access to insights that can streamline debt collections and improve customer relationships like never before.
In this blog post, we will explore ten reasons why your business should focus on digital debt collections this year, and for that, let’s start by understanding why just using traditional debt collection methods by themselves is outdated.
5 problems that make traditional Debt collection methods inefficient
As you may already know, traditional debt collection methods like letters or phone calls tend to be inefficient. But why does that happen?
Here are five reasons why these channels may not be the safest bet for the digital era:
- Limited communication channels: As technology advances, only a few traditional methods are still standing: mail, phone calls, and in-person interactions. Relying on such a limited number of communication channels gives debt collectors a hard time trying to do their job. Many debtors (mainly millennials and Gen Z) may not respond to phone calls, and may not have a landline or even a permanent address to receive letters.
- Limited automation: There is not much scope for automation when using traditional debt collection methods, as they rely heavily on manual processes. Letters have to be written, phone calls have to be made, and doors have to be knocked on. This, coupled with the need for manual data entry and the lack of advanced software and integrations, creates an error-prone environment where many opportunities for improvement and collection are lost.
- High costs: Scaling your business shouldn’t rely on how much and how fast you can grow your staff. That’s what makes traditional debt collection methods expensive. They require too much time and effort from trained professionals, which can be a problem, especially for small businesses that don’t have the resources to hire a dedicated debt collection team.
- Negative impact on customer relationships: Traditional debt collection methods can also have a negative impact on customer relationships, as they tend to be rude and impersonal with debtors. Mistreating debtors can damage customer retention, past-due collections, and the reputation of your business.
- Limited compliance: Traditional debt collection methods are more prone to legal and regulatory issues than digital methods since they have been around for more time. At the same time, many collectors aren’t aware of the latest laws and regulations regarding debt collection practices, which can result in costly fines and legal action against the debt collection agency.
While traditional debt collection methods have their weaknesses, they also have some strengths that can’t be found on digital channels, and sometimes make the difference between collecting a debt or not. The best bet is to aim for an omnichannel debt collection strategy that lets you leverage all channels (traditional and digital) in a synchronized way.
10 reasons why focusing on digital debt collections is a good idea
Digital Debt collection methods let you tap into a whole new range of collection opportunities, as they help you to resolve debt faster, easier, and in a more efficient way. Here are the 10 main advantages that digital collections have to offer:
- Efficiency: There are many repetitive and time-consuming tasks that can be automated and streamlined if done digitally. This way, your debt collection process will be faster, leaner, and more efficient. For example, documentation, payment processing, and communication are all areas that can see substantial benefits from automation and will allow you to scale your business without restraints.
- Cost Savings: With automation, you can save money by reducing the size of your staff and your administrative costs. Computers work 24/7 and can complete tasks that could take hours in seconds while not making any mistakes. Additionally, digital collection channels aren’t as expensive as traditional ones like phones or mail.
- Better Communication: One of the most important benefits of digital channels is that they can improve communication with debtors. You’ll be able to provide real-time updates, personalized messaging, and contact debtors through their preferred communication channels to build a better relationship with them and make collections easier.
- Improved Compliance: It is easier to ensure compliance with legal requirements and industry regulations when using digital collection methods, as you can automate the tracking of debt collection activities, provide audit trails, and reduce the risk of errors or omissions.
- Data Analytics: A robust digital structure will let you collect data and find powerful insights to identify trends and patterns among your customers. This information can be used to improve your collection strategies, optimize your communication channels, and predict the payment behavior of your debtors.
- Personalization: Digital methods and platforms allow for a more personalized approach to your collection efforts. With them, you can create personalized payment plans and messages for debtors, which will improve customer experience, resulting in better collection rates.
- Accessibility: Digital collection platforms work 24/7, which means that customers can access their accounts, view their payment history, and make payments at any time, from any location.
But accessibility goes both ways, as digital communication channels will help your company reach customers that were previously unavailable through traditional channels.
- Increased Brand Reputation: By offering debtors an easy-to-use and convenient debt collection process, digital debt collection techniques can help you build a solid brand reputation that keeps customers happy and engaged.
- Future-Proofing: In this day and age, customers expect you to have a strong digital presence. By focusing on improving your digital debt collection methods now, you can future-proof your business to stay ahead of the curve in terms of technology and customer expectations.
- Increased collections: Overall, digital debt collection methods will increase the number of collections you make with your business, as you are more efficient, compliant, and are able to build a strong relationship with your customers through personalization and convenience.
Digital Debt Collections Statistics
Digital commerce and collections are growing faster than ever. Here are the statistic backing it up:
Digital Commerce Statistics
- According to Oberlo, eCommerce sales are expected to reach 20.8% of retail sales worldwide in 2023.
- In the US, online shopping is on its way to reaching 218.8 million users by the end of 2023.
- 2022 closed with more than 3.4 billion Mobile Wallet users worldwide.
- Mobile Banking surpassed the 1 Billion users mark worldwide.
Digital Debt Collection Statistics
- 78% of traditional collection calls are blocked.
- 50% of contacts made by voice or mail take no action.
- One agent can handle up to 16 messaging conversations at a time.
- Digital channels can achieve 82% - 92% payment rates.
- According to Omnisend, Marketing campaigns using SMS are 429% more capable to end in conversion.
- Traditional channels generate 50% fewer interactions with customers than digital channels.
How to start your digital make-over
Now that you know why you should focus on digital debt collection this year, where should you start?
Here are some steps that can be taken to start a digital makeover:
- Evaluate current processes: Start by looking for areas of your existing debt collection process that are time-consuming, error-prone, or have high manual efforts.
- Define goals: Identify what the debt collections team wants to achieve with the digital makeover, and define clear goals.
- Identify the right tools and technologies: To pick out the right tool, you need to make sure that what they offer aligns with the areas of the process you want to improve, and at the same time can easily be integrated into your current operations. At Arrears we offer a comprehensive debt collection solution that allows you to step up your digital game while integrating seamlessly into your business structure for the least amount of friction possible.
- Train the team: Now you need to make sure the team is comfortable using the new platform and understands why the digital makeover will benefit the company and their work.
- Continuously measure and optimize: One of the main benefits of digital is that you can see the real-time results of all your debt collection activities. Leverage this information by continuously measuring and optimizing to ensure that the debt collections team is achieving the desired outcomes.