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Why e-commerce companies need to automate their debt operations

By Chan Hsuan Hung
Thursday, January 6 2022

#ecommerce

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The e-commerce industry has taken off in recent years—and this doesn’t look set to end any time soon. Over 60% of the global population now has access to the internet, while supply chains are more complex and far-reaching than ever before. COVID-19 simply poured fuel on the fire. With shops shut and people stuck indoors, the only way to buy (and sell) goods was online. 

Consider the following statistics:

  1. The global e-commerce market grew by 25.7% in 2020;
  2. And annual global e-commerce sales reached $3.9TN;
  3. By 2040, it’s predicted that around 95% of all purchases will be made online. 

E-commerce is becoming especially popular with younger consumers due to ‘buy now, pay later’ (BNPL) functionality. This allows consumers to buy goods, receive them instantly, but pay for them in a series of instalments. These payments are often interest-free—which makes them even more attractive. 

However, this is a double-edged sword for e-commerce companies. On the one hand, they can generate more sales. On the other hand, BNPL means that they then have to make sure customers pay what they owe. In other words, they need to have a rock-solid collections process in place. 

Sales are great—but if companies aren’t receiving the money that they’re owed for their goods, then sales alone count for nothing. This blog will explain why e-commerce companies need to automate their debt collection operations to maximise recovery rates with minimal effort.

Why should e-commerce companies care?

E-commerce companies cannot simply outsource their collections process without a care in the world. Instead, they need to follow a strategic approach—especially as the number of past-due customers they deal with will likely increase moving forward. 

There are 3 reasons why this is so important:

  1. Third-party agencies might harm your reputation

E-commerce companies might be tempted to let a third party handle their debt recovery process. On the face of it, this seems like a good idea—but if you dig a little deeper, you will realise that there are significant downsides to this approach.  

Third party agencies don’t care about protecting e-commerce companies’ reputations—their only concern is making sure that past-due customers repay what they owe. As a result, they often use aggressive dunning tactics to try and force a customer to pay up, such as threatening phone calls or endless letters through the door. 

Unfortunately, these tactics could end up damaging the relationship that e-commerce companies have carefully built with each consumer. This will negatively impact retention rates, and over time, could lead to diminishing sales figures.

  1. A great collections approach means more cash in the bank

It’s important that e-commerce companies get their collections approach right. If they do, they can increase their recovery rates, boost their cash flow, and achieve more with less effort. 

Consider the fact that Klarna—global BNPL leaders—recently reported losses amounting to £81M (despite its incredible annual growth). If Klarna optimised its collections operations, automating key processes and deploying customer-centric dunning strategies, then it would minimise the number of accounts that fall into arrears. As a result, they would have fewer losses—and more cash in the bank.

Having a smart, automated collections process isn’t just a nice-to-have—it plays a key role in generating more profit for your business.

  1. Keep customers digitally engaged

Companies often assume that when past-due customers don’t pay up, it’s either because they can’t or they don’t want to. Often, however, neither of these are true. It might simply be that you haven’t given them an easy way to pay you back. 

By leveraging an omni-channel approach in your digital collections operations, you can keep past-due customers engaged throughout the process. For instance, you might send them an SMS message with a link to a payment landing page where they can pay with a credit card, with Apple Pay, or even set up an instalment plan.

Using a digital-first approach will keep consumers engaged throughout the dunning process, making it as easy as possible for past-due customers to pay up. Not only will this increase e-commerce companies’ recovery rates, but it will also positively impact the way that past-due customers feel about their brand.

Must-have features to master debt collection approach

As previously mentioned, the right collections approach will enable e-commerce companies to reduce manual effort, increase recovery rates, and strengthen their customer relationship. But which key technical features do e-commerce companies need to look for when picking a collections provider to work with?

  1. Machine learning/AI

Machine learning and AI are transforming collections. The data that they generate allows collections teams to precisely monitor the impact of every single strategy. They can see which messaging templates work best for which segment, analyse the best time to send out dunning messages, and see precisely who has (and who hasn’t) opened their messages. 

By leveraging machine-learning and AI, e-commerce companies can craft data-driven strategies that have the greatest chance of resulting in swift repayments. They will also be able to analyse and track collections performance in a few clicks.

  1. Self-service and custom payment service provider (PSP)

We live in the customer experience (CX) era. Consumers now expect companies to serve them seamless experiences at all times. If they receive a subpar experience, they will often refuse to engage or might even decide to take their business elsewhere. This is why traditional dunning approaches (such as sending physical letters or calling customers to demand repayment) no longer work.

Instead, e-commerce companies need to use customer-centric alternatives. Self-service functionality allows consumers to take control over their own repayments. They can pay back whatever they can afford, on their preferred channels, at a time that suits them—or they can instead set up an instalment plan all by themselves. The best self-service portals include a variety of payment service providers (PSPs), such as Apple Pay, Klarna, Paypal, Paysafe, Wirecard, etc. This makes it as easy for past-due customers to repay what they owe as it is for them to shop online in the first place. 

  1. Account management

Collections agents need to tailor their approach according to each past-due customer. However, they can only do this successfully if they know what every customer likes, dislikes, and how they behave. In other words, they need a wealth of information on every single account

The best debt management software gives agents an all-in-one account management dashboard showing past-due customers’ account information, contact information, payment history and schedule, and more. Agents can easily analyse all must-know data before creating the perfect dunning strategy for each segment/customer. 

  1. Flexible segmentation

E-commerce companies should leverage a collections management system that allows them to segment customers according to key behavioural or demographic factors: age, income, the amount that they owe, or any other parameters that can be segmented using the “if” condition (e.g. “if they haven’t opened the last dunning message, then…”). 

Collections teams can segment past-due customers into like-minded groups before serving tailored experiences. Not only will this enhance their customer experience, but it will also result in higher repayment rates. 

Prepare for the incoming wave of
e-commerce sales

The e-commerce industry is currently experiencing rapid growth, fuelled in large part by BNPL. E-commerce companies must therefore implement approaches that allow them to maximise repayment rates while minimising the time, effort, and resources they spend collecting what they’re owed. 

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