Debt recovery: the case for a customer-centric approach

Elizabeth Jenkins-Smalley

Elizabeth Jenkins-Smalley

Editor In Chief at The Executive Magazine

Monica Mackintosh, customer services director of Echo Managed Services discusses a worrying rise in the use of bailiffs for debt recovery in local authorities.

Levels of UK debt are increasingly on the rise. Indeed, recent estimates from the Organisation for Economic Co-operation and Development have warned that household arrears are escalating at an alarming rate, posing a potential risk to finances on a national scale.

Traditional consumer profiling may suggest that those in debt are from the poorest backgrounds; however, the reality is far more complex.

Our recent report, Counting the Cost of Debt Recovery, found that debt reaches all members of society, including those belonging to more affluent groups. In fact, debt often affects these groups in significant numbers. Higher income households are equally capable of living beyond their means, forgetting to pay or having other reasons that have led them to miss a payment.

There is a vast array of reasons why people get into debt – not all of which are intentional, nor intrinsically linked to financial hardship. Time poor debt – where customers fall into arrears because they simply don’t have the time to keep on top of their finances – is a common cause, as is protest debt; in which customers refuse to pay bills on time because they have received poor service or been inaccurately billed.

Categorising debtors into one homogenous group for a “one size fits all” debt collection process therefore – both in terms of demographics and reasons for falling behind on payments – is far too simplistic and can lead to more significant issues later down the line.

What’s more, a customer’s debt may just be a temporary blip. Companies must balance the long-term lifetime value of a customer against a short-term payment gain that may lead to the customer choosing to switch supplier. Today’s customers are also more likely to openly share their bad experiences during debt collection, and this can have a significant impact on brand reputation and trust.

Overly aggressive tactics costing dear

Recent research by the Money Advice Trust, which found a rise in the use of bailiffs for debt collection in local authorities, shone a light on the concerning practices employed by some organisations across the UK. Many people in debt have to endure additional distress during the debt recovery process when they may feel extremely guilty already – 48% of those who miss a payment will have done everything within their power to pay what is owed.

Overly aggressive debt recovery is not the answer. Tougher sanctions should be held back for the small minority of customers where it is deemed appropriate and all other reasonable options have been exhausted. For the remainder, a more understanding approach is beneficial; supporting customers through their current circumstances and ensuring you deliver fair outcomes. It’s essential to engage customers earlier and find a fair and sustainable outcome.

Consumers judge energy suppliers, local authorities and credit card companies as the worst offenders when it comes to poor debt recovery practices – but it’s something which affects organisations across all sectors. Indeed, over 50% of people would switch to another provider if they experienced bad debt collection practices and a further 18% said they would delay payment further to punish their company in the event of poor debt recovery. Consequently, there are significant financial and reputational losses at stake should this stage of the customer journey not be handled with care and attention.

A customer-centric approach is by far the most efficient and effective way of dealing with customers in arrears; organisations must therefore flip traditional debt recovery practices on their head.

So, how best to implement this?

Early Identification

It is critical to proactively identify customers who may have payment issues as early as possible. It’s also important to know the detailed make-up of your customers as this can be used to ensure that further actions are individually tailored to their needs. Also, it’s vital for companies to have a full understanding of spotting a range of customer vulnerabilities, and putting in place appropriate action paths such as financial discounts, sign-posting to free, impartial advice and additional support mechanisms.

By engaging with customers in a timely fashion and using early indicators to predict payment behaviour, organisations can act sooner to mitigate reasons behind debt before issues even occur. For example, a soft approach can be implemented pre-bill and immediately post-bill, often negating the need for last-resort collection practices which can have a damaging effect on both the customer and company reputation.


Opening up a transparent, two-way conversation between both parties is vital from the outset, alongside a non-judgmental tone and starting from a point of positivity – giving each customer the benefit of doubt. Every customer is different, so to be effective, organisations must use a range of communication channels tailored to the needs of each individual. For example, calling a customer who works full time during office hours may only aggravate them – text or email may be a better way forward. The right conversation with the right customer at the right time is invaluable to discourage non-payment.

Moreover, it’s imperative not to overlook the potential of cost-effective technology. We have recently begun trialing new digital methods of communication such as personalised videos, providing an engaging payment reminder over email. So far, we’ve seen some great results that prove the efficacy of a softer approach.

Tailored solutions

Just as there is no one-size-fits-all approach to customer communication, it is also essential to offer a range of payment solutions for customers in arrears. Providing a fair and sustainable solution to debt – one which is completely transparent and explains all available options – not only helps customers to feel that organisations have their best interests at heart, but also saves unnecessary administrative efforts on both sides.

Reputational management

Clearly, a customer-centric approach to debt collection is by far the most effective way to manage cash flow within any business. This must be built on a trusting relationship which revolves around identification, conversation and understanding rather than fear and intimidation.

Properly handled debt management is just another part of the customer journey and it’s essential that organisations realise this. Indeed, it can actually improve the customer relationship without damaging company reputation; an important commodity in today’s hyper-connected society.

The importance of getting collections right simply cannot be ignored. Increased loyalty, repeat business, and more prompt payment can be expected if done properly. If not, companies face losing customers, suffering reputational damage and customer disengagement as a result.

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