Debt Prevention: Customer Service Tips to Help Stop Borrowers Falling into Arrears

Geraint Chamberlain

Geraint Chamberlain | Product Director

Geraint Chamberlain brings over 25 years of financial services experience, focusing primarily on consumer and commercial lending sectors. Geraint has a demonstrable understanding of the challenges faced by organisations in these markets which means that he is extremely well placed to assist Target clients in the development, launch and expansion of propositions. Geraint has worked with a large number of organisations in both the UK and mainland Europe.

With both job and financial security under threat due to the ongoing Covid-19 pandemic, lenders are facing the reality that for some customers, falling into debt seems increasingly likely.

When it comes to debt prevention, the role of the lender is greater than you might think. From advanced debt management software to a friendly voice at the end of the phone, smart account management can sometimes be the difference between arrears and credit.

Below, we take a look at some key steps that lenders can take to avoid debt.

Common Causes of Debt

There are many reasons why a customer may find themselves at risk of running into debt. A sudden change in a person’s circumstances can rapidly affect their ability to afford repayments. Some of the most common situations that can result in spiralling debt include:

  • Reduced income or loss of employment
  • Divorce or relationship breakdown
  • Illness and disability
  • Unexpected expenses or fees
  • Increased in bills and other costs

With job security at an unprecedented low and tensions running high, the problems above are increasingly common. In our recent blog, “The True Scale of Rising Household Debt in the UK due to Covid-19”, we revealed that the pandemic has negatively impacted 4.6 million people so far.

The Office for National Statistics’ Opinions and Lifestyle Survey has also found that by July 2020, 13.3% of people said they have had to borrow money or use credit more than usual since the coronavirus pandemic started.

The combined picture is that more accounts are falling into arrears, and lenders are under increased pressure to manage the rising debt.

Identifying At-Risk Accounts

When it comes to preventing customers falling into debt, step one is recognising customer accounts that may be at risk of falling into arrears. Customers who request a payment holiday or ask for the deferral of a bill may be on the cusp of arrears, and how the lender responds is critical to achieving the right outcomes for both the lender and their customer.

By paying close attention to customers’ changing circumstances, lenders can signpost the financial support available at the earliest opportunity and offer additional guidance for those who need it. For some, this sensitive account management may be crucial to avoiding arrears.

Recognising and Supporting Vulnerable Customers

Many organisations find it challenging to identify and respond to vulnerable customers. From emotional to physical and financial struggles, there are different kinds of vulnerability, and in these challenging times, the number of customers experiencing such challenges is at an all time high. And there are various ways lenders can support these customers needing additional help. We recommend:

Invest in training – equip frontline staff with the ability to identify and support vulnerable customers.

Technology – debt management systems and software can reduce the burden on lenders and borrowers, by streamlining and improving administrative processes.

Process Design – have processes that mean that vulnerable customers can be managed outside of the standard process where necessary.

Self-service – by offering customers a choice to self-serve, they can avoid some of the embarrassment they might feel in speaking to someone. A well managed self service portal will enable customers to set up repayment plans, update their details, manage their account, and complete income and expenditure assessments all at a time and place that suits them. And they can avoid having to speak to someone on the phone or face to face.

Flexible Repayments

For customers newly in debt, an unrealistic repayment schedule will only exacerbate the problem. Flexibility is essential when it comes to managing collections and arrears, but how can it be achieved? The two most important factors to consider are:

  • Debt management software – does your software have the capability to personalise customer journeys and offer the best user experience?
  • Front-line staff – are they experienced in tailoring services to specific customers’ needs?

Improving both your software and your customer service is key to providing the flexibility and adaptability vulnerable customers need.

Outsourcing’s Role in Debt Prevention

Many lenders choose to outsource their collections and arrears services, and partnering with an experienced provider can have a number of benefits. Chiefly, by outsourcing operational processes, lenders can focus on core activities, reduce risk and enter new markets quicker.

Another benefit to outsourcing can be reducing costs. We’ve already discussed the importance of delivering personalised customer experiences, and how investing in staff training is one way to achieve this. Outsourcing is an alternate solution: engaging a specialised outsourcer negates the need for training and heavy investment, instead providing a fixed-cost service plan.

Improve Your Debt Prevention Processes: Trust Target

If you are looking at how to stop debt for your customers before it becomes unmanageable, you may benefit from the experience of our collections and arrears team. To learn more about Target’s debt management services, contact us today.