The bane of the down economy. The collection call. Businesses hate making them. Customers despise receiving them. And without a doubt a collection calls makes the customer instantly undesirable and your organization a place where that customer will never do business again.
In the old world this may have been an acceptable loss to a business. But in today's environment this delinquent group may also include lots of people who in any other circumstance would be A-list leads. So pursuing business as usual with your collections may be driving away individuals who after the recovery will be highly desirable. And when they are empowered again, they will NEVER come back to your brand. What's more, they will probably trash you at every chance because your didn't work with them in their time of need.
Treating Collections as an Opportunity
I first came across some interesting statistics on this subject back in the late 90's. It wasn't a loyalty number or a liability number. It was a profitability number. And it said that businesses that had a plan for actively marketing solutions to slow-pays and no-pays were showing significant profit increase.
Think about it: The slow-paying customer who isn't threatened by you, provided with a reasonable means of paying and takes advantage of such means, isn't listed as a loss, is providing some repayment on a regular basis and is appreciating you more because you care.
The Numbers Make Sense
Let's look at the risk here and run the numbers. Say the liability of slow-pays is standing at about $1 million. All of that money is at risk and we can probably expect a quarter to half to default completely. So let's for argument say that under normal circumstances we can expect $500,000 of this to be written down as defaults.
Now, consider what would happen if you provided a reasonable solution that helped the customers. Maybe you spend $30,000 to send a self-mailer that explains the program and encourages them to enroll. Maybe then add the cost of follow up with telemarketing, instead of a standard collection call. In such a scenario we can expect a very high response rate. Probably a minimum of 75%. And it's also acceptable to assume that most who respond will actively work to meet the terms of the agreement. So conservatively we can expect a 50% reduction in write-downs, plus interest earned from the the payment plan. So it's not crazy to think that you could reduce your defaults down to $100,000 to $200,000, even after factoring in your additional marketing costs.
I can't share specifics of the data, since it remains proprietary, but in the case studies I saw the companies were actually erasing the debt and coming out ahead. Imagine that! Even the remaining no-pays were erased by the value of the people buying into the new paydown plan. Plus, you can't ignore the increased lifetime value of what we will call "future As." They won't forget your foresight and flexibility and no one will be a bigger advocate for your brand as they get back on their feet.
We always think about the total value of a customer in every marketing endeavor. So it's always seemed strange to me that this thinking goes out the window for many companies when it comes to collections. This is a huge opportunity for many businesses to cast off debt and increase profits, all with minimal cost. And it's the perfect forward-thinking strategy for a down market.