Friday, 3 May 2013

The hidden value in consumers who don’t pay - one man’s trash is another man’s treasure

When it comes to collections and recoveries we see the full range of reactions - from those who actively engage, right through to those who never make a payment. To date, much has been made of maximising the returns from consumers who do pay, but what about reaching out to those who currently do not? The short answer is that, for a creditor working in isolation, these consumers represent a significant challenge and cost for which no return is generated. So what opportunities do exist for a creditor determined to make more of their non-paying consumers?

They key is to seek a greater understanding of the individual and why they’re not paying.

1. Understanding customer behaviour 
By accessing additional data sources creditors can begin to more effectively split ‘won’t pay’ from ‘might pay’.  Simple examples such as insolvency suppressions are already widely used in our industry, but many more sources of profiling data are readily available but less widely used.  For instance, how many creditors are able to look at first placement DCA activity when recycling their consumers on to a second placement or indeed how the consumer has behaved in recoveries for other creditors?  I would suggest that consumers who paid or, in some circumstances, even just engaged with a DCA or another creditor are much more likely to pay at the next DCA placement than those who did not.

2. Reaching out by email
Often the root cause of non-payment is inability to contact the consumer using the data currently held by the creditor.  Telephone and address appends are widely used in our industry and their benefits are well proven.  In my view, the emerging opportunity is email contact data.  So often a consumer in financial difficulty will see significant changes in their personal circumstances which will result in changes to addresses and telephone numbers, but an email address, which is usually free to maintain will often stay with the consumer and, with the right execution capability, represents a genuine opportunity for creditors to re-engage consumers who have previously been non payers.

3. Breathing life into a portfolio
Just because a consumer isn’t paying you, it doesn’t necessarily mean that they aren’t paying someone else – or that they are not able to pay.  With the emergence of data sources dedicated to sharing information about consumers who are in arrears, it is increasingly possible gain a fuller picture of their financial circumstances and to differentiate between those in genuine financial difficulty, and those who are paying elsewhere due to a prioritisation decision.  This presents an excellent opportunity to proactively target those who genuinely can pay. This can prove an extremely effective tool on later stage portfolios that would otherwise be extremely expensive and unwieldy to work.  Going one step further and considering the debt purchase market, this can also present an interesting opportunity to sell specific accounts to another organisation which may have reason to value them at a premium as compared to the in-house valuation.

Organisations that implement even just one of these activities may find that they can radically improve performance on what otherwise appeared to be a portfolio ready for write-off. That being said, it is still important to know when it’s time to call it quits. As technology and data improves, the point at which the effort required to pursue payment outstrips the benefit has changed. However, as unpalatable as it may be, that point does still exist. Depending on internal capabilities, access to technology and specialist suppliers, this point will be different for each organisation. It’s time to take a fresh look at all the options available with an open mind – and you, too, may find that you can mine gold from what otherwise appeared to be trash while enhancing your understanding and therefore treatment of those who are in genuine financial distress.

By Elliot Jackson, Director of HeliX, TDX Group

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