Global organisations across all sectors are grappling with a challenging market. The money has been flowing over the past few years—especially from ambitious venture capital firms (VCs).
However, the impending recession, conflict in Europe, rising gas prices, and plummeting stock markets have significantly changed companies’ financial outlooks. These factors all impact customers' ability to pay their bills. Thus, arrears are increasing globally.
The global economic landscape
In New York alone, over 1.4 million customers are behind on their utility bills due to the current energy crisis. Arrears for ‘essential bills’ rose by an average of 29% in Scotland throughout 2021. StepChange Scotland, a debt advice charity, suggests this might be due to the transition from the Covid-19 period when consumers use credit to cover such bills.
Eurozone inflation has hit a record high of 8.1%, with energy prices increasing by 39.2% and food, alcohol, and tobacco by approximately 7.5%. As alarming as these figures are, however, they pale compared to Argentina’s 72.6% inflation forecast. Indeed, consumers’ purchasing power is rapidly eroding throughout the entirety of Latin America.
Mass layoffs have started
Businesses are cutting costs by laying off their staff in an attempt to survive this challenging period. Consider the following examples.
BNPL: Klarna
Klarna is the world’s top BNPL service provider. It allows consumers to instantly purchase goods and pay the cost back in instalments. Hence, it has become so popular worldwide.
But it’s not all good news. Klarna recently announced that it will be laying off 10% of its 6,500 or so global workforce, with the CEO citing “a tragic and unnecessary war in Ukraine unfold, a shift in consumer sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession” as the reasons behind the layoffs.
Grocery delivery: Getir and Gorillas
Getir and Gorillas are leaders in the quickly emerging grocery delivery sector. However, the market’s growth looks set to stall in the near future. Turkish company Getir recently announced it will be laying off 14% of its 32,000 employees and Gorillas has announced it will let 300 employees go. While this might be a fraction of its 12,000 global employees, it’s half of all staff currently employed at its Berlin headquarters.
Trading platform: Robinhood
Robinhood has disrupted financial services over the past few years with its easily accessible, commission-free investing and trading platform. Unfortunately, however, Robinhood will be laying off 340 employees (roughly 9% of its total 3,800-employee-strong workforce). This comes after the CEO admitted they had overhired during the pandemic and so now need to scale back.
Digital bank: Nuri
Nuri, a German digital bank focused particularly on crypto, will be making 20% of its workforce (45 out of 225 staff) redundant in the coming months as it seeks to safeguard its profitability.
As Kristina Walcker-Mayer, Nuri CEO, states: “Our strategy and planning so far was set up for high user growth and activity, as these were the parameters for startups in the past… However, the macro-economic developments are leading to more uncertainty in the financial markets, particularly the venture capital space, meaning that our planned strategy is not in line anymore with the massively changing market expectations."
Why a humane approach to collections is the best strategy
Collections teams should consider the global financial landscape when devising collections strategies. Aggressive collections strategies simply do not work now since some customers might be willing to repay their debt once they have the money at hand. Many of them just need some time to resolve their debt.
There are three primary reasons why collections teams must follow humane approaches.
1. It’s a tough time for consumers
Covid-19, inflation, rising energy prices, and mass layoffs are taking their toll. Financial instability is increasing worldwide as consumers struggle to pay their bills—even for essential items. Collections teams should therefore be empathetic, bearing in mind the financial difficulties that customers are currently experiencing.
2. Customer loyalty is hard to maintain
It’s easier than ever for customers to switch companies—hence why 89% of companies compete primarily based on customer experience (CX). Adopting a humane approach to debt collection will lock in long-term customer loyalty. Past-due customers will appreciate being treated respectfully and humanely, and they will continue to do business with the company in the future.
3. Aggressive dunning strategies lead to reputational damage
Collections teams that adopt harsh strategies will ruin their company's reputation. Even if they do persuade past-due customers to repay their debts, these consumers will make a mental note never to do business with the company again. In fact, they might even tell others of their poor experience, hurting the brand’s wider reputation and decreasing overall sales.
How can collections teams collect their debts humanely?
By following the 6 strategies outlined below, collections teams can provide a humane and customer-centric collections experience to their customers.
1. Send reminders in the pre-collections stage
To prevent customers from running into arrears, collections teams should send gentle reminders in the pre-collections stage, outlining how much consumers owe and when it’s due.
2. Educate customers about the consequence of late payments
Past-due customers might be unaware of the spiralling consequences of late payments. Educate them upfront. Explain why late payments will negatively impact their credit score and remind them that late payments also come with added interest.
3. Offer multiple payment options
The best collections teams offer multiple payment service providers (PSPs). Past-due customers can pay back their debts using Klarna, PayPal, Paysafe, Wirecard, Apple Pay, or any other alternatives. By catering to consumers’ different payment preferences, collections teams can boost both repayment rates and customer satisfaction.
4. Provide self-service capabilities
Give consumers control over their own repayments. Send dunning messages that link out to self-serve repayment landing pages, allowing consumers to repay their debts without waiting in a call queue or speaking to an agent.
5. Embrace digital channels
People use digital channels to communicate almost every now and then and why shouldn't collections go digital as well? Instead of calling or sending snail mails, collections team should send out digital payment reminders, whether via SMS, email, or social media.
6. Adopt personalised messaging
Many collections teams repeatedly send out the same generic emails to all consumers across different stages of the debt collection process. This is a common pitfall. If the messaging strategy didn’t work in the first place, it certainly won’t work going forward. Collections teams must learn how to segment customers effectively and send them personalised dunning messages based on their behaviour.
Remember: you’re dealing with people
Above all else, collections teams need to remember they are dealing with individual people—people who are currently struggling financially. It’s a scary time. Layoffs, inflation, conflict, and an impending recession are all having an impact on consumers’ wallets.
By adopting a humane approach, collections teams can collect as much as possible while minimising consumers’ stress and protecting their brand’s reputation.
Want to know what kinds of software help you analyse customer behaviour and recover your debts in a very humane and personlised manner? Talk to one of our team to explore more.
