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One of the biggest challenges in debt collections is trying to create an effective dunning process that ensures outstanding balances are settled promptly and customers remain loyal to your company.

Deliver a poor customer experience (CX) and you’ll waste valuable resources and budget on acquisition only for them to take their business elsewhere next time around.

Customer service in dunning processes shouldn’t stop when a customer falls behind. It should focus on the customer and their individual situation. There’s a major difference between a customer who has simply forgotten to make a payment and one who is dealing with financial hardship.

Businesses are often masters at building acquisition and customer management strategies, but are yet to grasp the importance of applying the same approach in debt collections and its significance on maximising the lifetime value (LTV) of every customer.

Customer-centric collections is different from regular debt management processes. Instead of focusing solely on delinquent accounts and leaving this stage of the collections cycle to a team who have no prior relationship with the account holder, a customer-centric collections strategy places them at the heart of every communication.

In this blog, we take an in-depth look into the changes driving customer-centric collections, the importance of making the transition, and how you can put these learnings into practice.

Customer preference vs current collections strategy

Customer preferences are changing. The internet and mobile usage create greater choice and extended access to self-service learning. Customers no longer feel obliged to commit to one provider once they’ve settled an outstanding debt and find a better option.

As a result, this is placing more importance on the role of customer service. For years, there’s been a substantial gap between marketing and sales customer service and the collections process. As soon as a customer misses a payment or is deemed high-risk, they go from a key account holder to enemy number one in the space of days.

Interestingly, McKinsey highlighted that there’s even a mismatch between the contact strategies used by issuers and those preferred by their high-risk customers.

From the customer viewpoint, issuers lag behind their own digital inclinations. So, while higher-balance customers often like to engage using digital channels such as mobile and online methods, most issuers are only choosing to contact low-risk customers in this way. It appears that as soon as a customer is regarded as a risk, any digital communication preference is ignored and an outdated approach of calling and sending letters is adopted.

The reality is every customer in delinquency has unique circumstances and preferences. Taking a one-size-fits-all approach ignores these very principles and creates a poor customer experience.

The key is to implement a deeper level of segmentation of at-risk customers to ensure preferences are met and an excellent standard of customer service is maintained from acquisition to collections.

This isn’t to say that customers expect digital engagement to be their only service delivery option, but they do expect it to play an integral part in the dunning process. Modern-day life moves at breakneck speed, meaning customers often don’t have time or patience to sit in long call queues and answer calls during work hours. They want 24/7 accessibility to self-service platforms and gentle reminders on the go via digital communication methods.

In McKinsey’s guide on behavioural insights and innovative treatment in collections, it discusses how humans have a psychological need for agency and control, with many overdue customers admitting to deliberately refusing calls from collectors by checking their caller ID before accepting calls. Customers want the freedom to make their own choices, and when they’re in a position to make a payment, they want a quick solution.

Another factor driving the change in customer preferences is the role of making them feel more valued. As mentioned earlier, customers have options. So, if you treat them badly during the collections cycle, they’ll take their business elsewhere once they’ve settled their account with you. This includes calling them multiple times a day during work hours and sending demanding letters just days into the collections cycle.

A customer-centric approach draws upon analytics and business intelligence capabilities to help devise a tailored plan for customers to make repayment more manageable. It’s about recognising the opportunity to help instead of hinder and enable customers to take positive steps in settling their accounts. Make them feel valued and they’ll be more inclined to continue working with you over a longer period.

The flywheel approach

To achieve the best customer experience in collections, you must think about the business strategy in its entirety – including sales, marketing, service and collections.

When most businesses talk about growth and acquisition, they’ll mention a funnel. However, the issue is that a funnel only concerns itself with the outcome. It takes just one bad experience during the dunning process for all the time spent acquiring a customer to be undone.

A more effective customer-centric collections strategy works alongside the wider business strategy to form a flywheel.

Unlike the funnel, the flywheel is an efficient way of storing and releasing energy. Devised by James Watt, the idea is that the amount of energy the flywheel stores depends on how fast it spins, the amount of issues it encounters, and its size.

The flywheel uses the momentum of your happy customers to keep it spinning, thus generating referrals and repeat sales. When you start using the flywheel, you start to make different customer-centric decisions in your strategy, placing customers at the centre of all the business elements, such as marketing, sales, service and collections.

To maximise growth, you need loyal customers. This is achieved through providing an impressive customer service. Treating the acquisition, service and collections stages as one integrated function tailored towards customer needs is a powerful tool for building up speed, improving recovery times and driving future business.

It’s a motion of success which can be fuelled by the development of technology and the willingness to implement it.

The role of technology in customer lifecycle management

The debt collections landscape is evolving thanks to the emergence of artificial intelligence, machine learning and automation. There’s an opportunity to combine standard business practices with advanced technological solutions to optimise the customer experience.

Customer-centric collections which leverages the best debt collections software has the ability to reduce the average days sales outstanding (DSO), while helping customers better manage their money moving forward.

Customer-centric collections strategies which uses the best AI-led software can optimise  channels, messaging, timing and the tone by creating scenario analysis of possible outcomes. In essence, you can use the data provided to identify issues before they arise, allowing you to develop value-added, personalised customer engagement before an account even enters the collections cycle. By placing a greater emphasis on default management and prevention, you’ll not only deliver a better customer experience, but you’ll also safeguard future revenue streams by helping preserve a customer’s credit worthiness.

Furthermore, technology makes it possible to use behavioural findings to give businesses a deeper understanding of how to speak to customers and their preferred channel. In turn, this information opens the door for a more transparent and accessible customer-client relationship, which can pave the way for future cross-selling and up-selling opportunities.

Having the power to digitise old processes through automation can serve the whole  customer service management strategy too. Too frequently, businesses treat collections as a single element of operations by either outsourcing it to third-party agencies who have no affiliation in brand values and are driven by making quick financial gains, or entrusting a team who also haven’t had any prior engagement during the acquisition journey.

The best debt collections software can use data to customise touchpoints during every stage of the customer journey to create an integrated, flywheel approach across the business. Making more informed decisions maximises growth and is an advanced way of utilising data to revolutionise the CX once and for all.

Quick tips on how to improve the customer experience in collections

  • Develop a flywheel approach which places customers at the heart of everything you do and integrates every part of the customer journey, from acquisition to collections.
  • Keep customers updated before they enter the collections cycle to help add value and allow them to manage their money more effectively.
  • Take note of customer preferences by utilising modern channels like email and SMS. You can then use AI-led debt collections software to analyse data to determine the best time of day to reach them and find possible reasons for late payments. The latter will allow you to tailor the communication and introduce a compelling nudge.
  • Be clear in your terms and conditions before making the sale. Again, this is where the integrated flywheel approach comes in. Your sales team needs to make it clear what the payment conditions are, so it doesn’t cause friction or delays further down the line in collections.
  • Consider a customer’s need for agency and control by giving them access to a self-service solution. This gives them the ability to make a payment quickly and on their terms.

Final thoughts

The main thing to remember is to always put customers first. While it may feel like a cliché, it’s an action which many businesses are failing to do when it comes to collections.

Customer-centric collections is a case of merging the whole business portfolio and creating more intelligent touchpoints along the way.

The moment you treat collections as a standalone, money-driven process which you can outsource or hand off to a different part of the business, is the moment you damage your chances of repeat business and an excellent customer experience.

Using technology to make informed decisions is a way of streamlining processes, listening to customer preferences and developing a cohesive flywheel approach so you can gather momentum in the race for industry growth.

Your responsibility to the customer doesn’t end once they sign-up to a service or buy a product, it’s the start of a blossoming relationship with a lifetime of possibilities.

Interested in learning more about how technology can help you create a customer-centric collections strategy? Then schedule a demo with us today.

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