Motor finance companies which use new approaches to debt
collection will benefit as the economic picture gets gloomier, says
Nick Cherry.

It is now widely accepted that the economy will deteriorate
further in 2009, and that consumers will continue to face the dual
challenges of increasing living costs and the spectre of rising
unemployment. Initial predictions of a shallow recession have now
given way to more severe forecasts, including the possibility of
unemployment rising to the recently inconceivable level of three
million.

n this climate, there will be an obvious temptation for debt
recovery operations to push debtors harder and clamour louder for
what little cash is available. However, with a court system that is
already overloaded and the rising numbers of personal insolvencies,
it is vital that collections professionals seek to work proactively
with debtors to find affordable solutions.

Motor finance providers in particular need to find new and
innovative ways to help keep customers in their cars to avoid
crystallising losses wherever possible. Consumers in general still
have the intent to repay their debts, but increasing numbers will
have a significantly reduced ability to do so and this will present
the industry with a stern challenge.

When set against a backdrop of falling new and used car prices,
which make repossession a less attractive option, retaining
customers by finding affordable payment resolutions becomes a
pivotal concern.

Companies must have the foresight and flexibility to work with
debtors through what is set to be a difficult 2009.

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More sensitive approach

It is time to focus on the core collections skills of listening
and rapport building with potentially over-indebted consumers, to
reach a mutually acceptable payment arrangement. Companies need to
invest more time and energy in re-educating and refocusing their
teams and goals in an effort to maximise every conversation and
potential arrangement. Collections strategies and provisioning
mechanisms also need to reflect the realities of the situation, and
allow credit professionals the opportunity to minimise bad debts by
getting closer to the debtor, to understand thoroughly the severity
of their circumstances, and to mitigate the situation
accordingly.

In recent years, new technologies have dramatically increased
the intensity of collections activity, and as a result debtors are
coming under more concerted pressure from creditors. The output of
this is that debtors are responding in ever-decreasing numbers to
the archetypal call centre approach.

What is quite clear is that the quality of the contact has to
supersede the quantity, and the companies which will continue to
flourish in the current climate will be those whose staff are
skilled enough to reduce the personal stigma and unpleasantness
surrounding the collections conversation through rapport
building.

By making the collections negotiation a less unpleasant
experience for debtors, companies will also be better positioned
from a customer retention perspective, and can actually enhance the
debtor’s perception of their brand through the fair manner in which
payment difficulties have been handled.

At a time when cars, houses and most other potential securities
are reducing rapidly in value, the importance of positive rapport
building, achieving increased numbers of payment arrangements, and
improving customer retention can form the bedrock of continued
financial success for collections businesses.
 
The author is director & general manager, Red2Black Collections
Ltd