Effective Strategies for Recovering Debt from Customers

GDS Modellica

To maintain the flow of capital, the right strategies need to be adopted to optimise the collections process, particularly as economic crises usually bring about an increase in non-payments and a lack of solvency

The Modellica Collection Suite from GDS Modellica is a solution based on segmentation, communication and decision strategies that uses predictive analysis, modelling and scoring to prioritise recovery efforts

Any economic crisis will inevitably bring with it an increase in the number of defaults and late payments. In such circumstances, a lack of solvency often becomes abundantly clear as businesses and individuals struggle to meet their financial obligations in the short, medium and long term. For businesses, this could be the failure to pay suppliers or collect payments from customers. For individuals and families, this could mean not paying the mortgage or making more purchases using their credit card. A steady flow of capital is vital for businesses to sustain the buying and selling of products as services and collect any payments due. The disruption caused by an economic crisis can therefore throttle resources and seriously compromise the sustainability and continuity of a country’s businesses.

In the current situation, therefore, it should come as no surprise that the strategies used to manage collections and recover non-payments are becoming increasingly important. Businesses that provide credit need to actively collect payments. Their very survival could be at stake, and they cannot and should not simply wait for debtors to pay up. Similarly, credit providers will need to assess their overdue balances and use the most appropriate methods to recover unpaid invoices. Applying an appropriate strategy and having the right staff will be a significant factor in reducing non-payments and improving collections. But the key to a successful collections process will also be to react swiftly to the earliest warning signs. The faster you act, the more likely it is that debt will be recovered. In fact, the probability of recovering unpaid debt decreases by more than 25% after the first three months.

According to GDS Modellica, once a non-payment is detected, the following steps should be taken: 1) establish the true reason for the non-payment and its implications; 2) document the debt and obtain an up-to-date financial report for the business or individual concerned; and 3) take measures to reduce risk by blocking in-progress orders or cancelling their line of credit. However, not all incidents are non-payments, and not all are the customer’s fault either. Sometimes the blame lies with the creditor or a third party. But in any case, the three main reasons for non-payments by customers are a lack of liquidity, administrative inefficiency and the deliberate withholding of payment.

Before starting the debt recovery process, the way that the business contacts the debtor will be key. It is of utmost importance to consider when and how to initiate contact with the customer. This will include knowing who to contact, how to explain the situation to them, what to expect of them, what their available means are and how to follow-up on the initial call. To aid this process, GDS Modellica has developed the Modellica Collection Suite, a customisable solution that unpicks and analyses data to then carry out a precise segmentation of default accounts. Its end goal is to increase collections, identify the most appropriate collection actions, automate decisions and increase customer retention through high-quality interaction. En este sentido, GDS Modellica, ha desarrollado Modellica Collection Suite, una solución configurable que descifra, analiza los datos y realiza una segmentación precisa de las cuentas morosas cuyo objetivo final es de aumentar las recuperaciones, identificar las acciones de cobranza, automatizar las decisiones y aumentar la retención de clientes entregando interacciones de mayor calidad.

According to GDS Modellica, the most effective strategy for good collections management is to personalise the process according to the individual debtor. Not all debtors are the same, and you will not use the same approach to recover debt from an individual as from a trading business. This means that it is fundamental to know the answers to some key questions. Do they want to pay? Are they able to pay? Do they know that they are in debt? Do they have objective grounds for not paying? A detailed analysis will help identify what type of debtor they are and how best to recover the non-payment. Ultimately, negotiation is a complex process and both parties need to reach an agreement. Proper management of the situation and effective communication will surely lead to better results.