Defaults and credit management: tips for debt collection during the pandemic

Companies aim to secure their liquidity position, which puts pressure on the credit management team. This article discusses how companies can successfully collect defaults with respect for clients’ difficult situations during the pandemic.

The credit management team deals with a rise of defaults due to the pandemic. With more overdue invoices and less sales figures, companies want to collect debts as soon as possible to improve their cash position. They want to secure their liquidity, which results in pressure for the credit management team. This article gives you 6 tips to collect the rising number of defaults with respect for the difficult situation of your clients.

Tip 1: segment customers

Segment your customers based on a number of parameters. The parameters you choose depend on the industry you’re in and your company. It’s always worth to check the payment history of customers. Next, you should see if you can deduct certain insights from customers’ payment behavior. For example, if you find that people who become customers digitally often pay on time, a digital payment reminder suffices. Other people need a stricter follow-up. Do some customers only pay once they receive a payment reminder? Then put this insight to use by sending them a reminder immediately after the payment term has expired. This segmentation allows you to work in a more targeted, strategic way.

Tip 2: adopt a personal approach

Tailor payment reminders to your customers. Address a customer with his or her name and offer their usual payment method. A personal approach increases the chance they’ll take action and pay their outstanding debt.

Tip 3: invest in digitalization

Invest in strong digital partners in credit management because it pays off. With a digitalized solution you can achieve results faster, collect more money and monitor the complete collection process. Without one you must send defaults to a third party and lose control over the collection process. With a digital solution you can monitor and correct it. It works the following way: you appoint a partner in the platform who then handles your file in that same platform. This allows for transparant reporting, improving financial forecasts of your company’s wellbeing. And that’s exactly what’s crucial during volatile times.

Tip 4: conduct credit checks

The numbers tell the tale. It’s important to assess customers’ financial position during these times. Digital solutions allow you to easily request a person’s or a company’s solvency. A good digital solution gives you an overview of all the registered debts a customers has, including collective debt settlements.

Tip 5: invest in the customer relationship

Make sure you’re visible to customers, even if your production went down because of the pandemic. Invest in initiatives that improve your brand’s visibility to customers, such as e-mailmarketing campaigns. Pursuing a top-of-mind awareness strategy isn’t only beneficial for your brand’s visibilty, it also sets up a stronger connection with your clients. They will be more likely to pay off a default quickly, which is the result of a psychological process: people are more inclined to do something for someone they have a certain connection with. If they don’t do what’s expected of them, they can even feel guilty. 

Tip 6: ensure a human approach

Don’t step on your customer’s toes. It’s more sensible to agree on a payment plan with a defaulting customer than to undertake harsh actions that will damage the customer relationship. It’s also often more expensive to acquire a new client than to retain an existing one paying late. 

Adopting a human approach to your collections thus enables an ethical collection and is benificial in economic terms. In general, it’s important to deal with defaults in an ethical manner. Your approach not only impacts your brand’s image, but the pandemic can be a reason why people haven’t paid their invoices in time.

Therefore, your credit collection team should go over the options with customers before going into legal actions. Discuss with third parties, such as court bailiffs, lawyers or debt collection agencies, which approach to take in advance. This prevents debt collectors using a different method from the one you had in mind.