Is debt collection turning soft?

There are organizations turning to outsourced providers to deal with their debt collection in larger quantities than has previously been seen. DCAs were most commonly used on a contingent basis at recoveries stage, where now it is throughout the collections life cycle including a first party BPO.

What is the driver for this? Are organizations running scared of potential regulatory breaches or are they simply finding it easier and more cost-effective to outsource?

When I first started in this industry the rules weren't as hard and fast as they are today, amazing as it may seem today, it was standard practice to ask a debtor if there was anyone they could borrow money from to pay off debts or if they had a credit card which they could put their debt on to. These practises might allow you to clear the outstanding balance on your customers' accounts but they were just moving the debt to a potentially more expensive form of credit and thus making the customer's situation worse. Now however, the FCA (and other regulators) and CONC rules state that an organization must not pressurise a customer to pay a debt including examples that borrowing money or increasing borrowing which would breach rule 7.3.10 in the CONC handbook. Many businesses are also realizing that helping a customer today is both the right thing to do and better for the business in the long-term.

There is no doubt that by outsourcing you are taking away a bit of the pain of ensuring all of your in-house policies, procedures and strategies are regulatory compliant, but ultimately it is up to you to audit the outsource providers to ensure they are keeping inline as well as maintaining your organizations in-house policies. Outsourcing debts can be an expensive way to run CnR, especially if your outsourcing provider is getting all of the low hanging fruit.

It would be prudent for organizations to review their current models, strategies and policies, and challenge themselves to improve customer satisfaction, to reduce the bad debt charge and external costs by tackling more in-house. Regulation is not something organizations can afford to get wrong but it doesn't mean collections have to run scared of the regulator and run softer strategies or outsource for someone else to ensure they are compliant as a result.

Here at arum we ensure we are up to date with all regulatory submissions, ensuring any updates are taken into account when speaking with our clients. We are also practitioners who have recently sat in the hot seat and understand collections and recoveries from strategic and operational perspectives.

We can help throughout strategy development; ensuring regulatory compliance is adhered to while maintaining quality in collection techniques and strategies. Contact us to find out how we can help you.