Debt management and the coming debt tsunami

Personal and business debt is piling up to levels not seen since the 2008 financial crash. The cracks are already appearing, showing signs of stress that, unless managed well, could lead to economic difficulties not seen for a generation.

Years of easy consumer credit with low interest rates have run headlong into a cost-of-living crisis in the UK and many other countries worldwide. Throw in the continuing effects of the global pandemic and Russia’s war on Ukraine, and alarm bells are ringing.

Here, we outline the current debt mountain, now commonly referred to as a debt tsunami (both analogies work just as well). And we examine the challenges facing the debt collections sector – offering insight into how refining the customer journey and experience can improve all parties’ outcomes.

Consumer and business debt mounts up

Take the UK as an example (it’s a similar picture across Europe), where there is a danger of a debt spiral. Consumers have taken out easy credit but now face rising interest rates, adding to the financial pressure of soaring energy bills and increases in inflation.

This is a significant worry, but signs are emerging that businesses are beginning to feel the heat, too. Not all sectors will face the same stresses, but if businesses fail, they often do so with debt that cannot then be recouped. This then leads to job losses, and when they do, everyday consumers cannot spend. A spiral.

One bright point, in the UK at least, is that there are record job vacancies. In December 2021, vacancies rose to a record 1,318,000.

But vacancies do not tell the whole story. It’s the debt figure that is most concerning to individuals and companies trying to get the money back.

Personal debt

While it’s been easier to borrow and finance what we desire or need, from cars to phones and household goods to bank loans or mortgages, the debt is piling up. The latest figures suggest it’s £220 billion in the UK.

Worryingly, new figures from Citizens Advice show more than 40% of consumers who used buy now, pay later services are now relying on other forms of borrowing, like credit cards, to pay off what they owe. It serves only to shunt debt from one channel to another, with the owed amount growing each time.

Not a day goes by without media reports of households struggling to keep up with essential bills like energy and food. With annual inflation in the UK jumping to 9% in April, the highest level since 1982, the pressure on consumers is getting ever worse.

Business debt

While the UK economy has grown since emerging from the 2008 crash, storm clouds are now gathering. The pandemic halted annual growth, and although the economy bounced back well, the true knock-on effect is still to be felt.

Cash flow remains a number one concern for many businesses. Those who cannot handle ever-lengthening invoice payment periods are being hit twice over with consumer spending dropping.

And for those companies already with finance in place, rising interest rates are eating into the bottom line.

According to the Federation of Small Businesses, 30% of companies now suffer from late payment of invoices, with one in ten (8%) saying this now threatens their survival. The next stage for many will be insolvency. Company insolvencies in February 2022 were up 121% compared to the previous year and 13% higher than February 2020, pre-pandemic.

All of which means other businesses are saddled with unpaid loans or bills.

The challenge for debt collection

Debt collection is always a delicate balance between needing to get back what is owed and helping the client, whether an individual or a business, avoid ruin. It’s a unique challenge but one that can be faced head-on by examining processes and policies.

Facing debt issues is stressful, and companies seeking to collect a debt would do well to make the process as simple as possible. Getting this right not only recoups money but builds loyalty for the longer term with customers.

At a time when consumers can switch suppliers so easily, like utilities or financial services, any tweaks to the process that helps the customer experience, especially at a difficult time, is hugely beneficial in the long run.

Here are just some of the possible solutions for a debt management journey to improve customers experiences.

Simplifying the journey

With so much now done in the digital space, companies must ensure they make interactions with customers as simple and effective as possible, especially when the customer is under duress.

A key complaint from consumers is being passed from one operative or department to another and having to repeat themselves or fill out forms time and again. An effective digital platform negates that by understanding customers better and streamlining and automating the process.

By understanding customers better in the first place, digital systems work better to help identify friction before it becomes a problem. In the same way, customers find it easier to seek help and attempt to manage debt issues before they worsen.

Using business intelligence with sophisticated real-time analytics and AI tech helps companies implement an effective and empathetic debt collection proces. These include:

· Assessing customer debt and that customer’s ability to pay using open banking data

· How best to contact/alert that customer and at what time

· Ensuring that customer does not feel ‘chased’ by multiple interactions

· Speedy resolutions

· Reducing errors

· Incorporating customer feedback into ongoing processes

A better understanding

Adding a fully integrated digital customer journey platform allows businesses to better assess and provide support for issues like debt management. It also lets customers interact, provide information, and speak to contact centre staff to find swift resolutions.

Collating data better and using it to streamline journeys allows for quicker action and resolutions that satisfy customers, another big tick in the customer experience box. Every customer is different, so it is important to allow them to choose their own method of engagement.

Being in debt can be embarrassing for individuals and business owners and talking to agents about repaying is not easy. The easier it is for customers to find the information and resolution they need using self-serve or agent assisted processes, the better.

Find out more about digital customer journeys

All product and service providers dealing with consumers or companies will benefit greatly by enhancing their customer journeys and processes.

Customers now have more choice than ever and naturally gravitate to modern, painless journeys to the detriment of companies not embracing a customer-centric approach.

Vizolution can help you make significant improvements. Contact us to find out more.

Find out more at our upcoming Collections webinar:

Is your organisation ready for the debt tsunami?

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