Debt Collection Agencies Hit With Decreasing Revenues During Covid-19

In a recent interview with Mark Sands, the Co-Founder and CEO of High Risk Merchant Account LLC stated, “We see massive monthly revenue declines in the debt collection industry, as millions of people cannot afford to pay the receivables.”  Mark went on to say, “Many millions of families are struggling to put food on the table and collections are the last thing on their minds.”. Companies both large and small have all felt the impact of the Coronavirus pandemic in different ways, but one specific sector that has been hit the hardest is debt collection industry. Since the global pandemic has caused many people to struggle financially, they resort to seeking help in the form of loans. With social distancing as well as other restrictions implemented due to the pandemic, collection agencies are having a tough time managing their cash flows and chasing debts.

Impact of COVID on Collection Agencies

The COVID-19 outbreak has led to many problems and challenges, such as declining revenue, slower demand and sales, growing job losses, and more. As a result, many people started to seek extended financial assistance. This put financial institutions at stress as they might require extreme measures for debt recovery. The multifold challenges that collection agencies are facing due to the pandemic are as follows:

  • Cost optimization in each and every department without affecting the overall output.
  • Revenue compression affected by the ability of an individual to borrow further in these unprecedented times.
  • Increase in losses because of the sudden spike in loan defaults and delinquencies.

These Are Challenging Times for Debt Collections

The collection agencies and institutions are facing many challenges at the moment. State and federal agencies in various countries around the world have implemented restrictions on debt collection in the short term. These agencies are expecting delinquencies to rise once the Coronavirus deferral ends. Until then, they will have to handle the situation with the limited available workforce.

Another key challenge that these agencies face is that borrowers with no history in delinquencies have begun entering collections bucket because of the pandemic. It’s essential to identify these specific types of customers and treat them separately. Contact centers already have their hands full thanks to the increase in outbound call volumes. Collection agencies face the challenge of managing the workloads for their staff.

What Collection Agencies Need to Do To Ride Out The Pandemic

Risk managers and collection managers will need to come up with intuitive solutions in order to deal with current challenges:

  • Augmented Intelligence – Collection agencies need to come up with qualification criteria for at-risk customers and find a way to treat them separately. They can do that via intuitive restructuring and payment plans. There is a definite need for augmented intelligence to identify these specific customers.
  • Customer Experience – In the wake of the global pandemic, collection agencies need to be extremely empathetic and proactive to their customers. Providing optimal solutions and maintaining customer experience is the need of the hour.
  • Optimize Operating Model – With mounting pressure to reduce costs and a limited workforce, collection agencies will need to revamp their current operating models and test new strategies.

At a strategy level, collection agencies should begin taking different measures to deal with the challenges. Advanced intelligence and data analytics can help them make more educated decisions. They will also need to think out of the box and take a page from past disasters to create and implement new, more robust methods for debt collection.

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