The Only Debt Collection Strategy Guide You Need

Published on November 1, 2021

A debt collection strategy is important for businesses and collection agencies alike. At the level of businesses, chalking a debt collection strategy helps you prevent and protect yourself from bad debts from occurring in the first place. For debt collection agencies, your work revolves around ensuring you can recover as much debt as possible for your clients.

For a debt collection strategy to be successful, it needs to be safe, secure, legal, and ensure the highest returns. A modernized outlook in an increasingly technological world is the way to go.

This article explores how you can combine traditional and modern methods to design a debt collection strategy that will be a key factor in your success. Whether you are a business or a debt collection agency, we’ve come up with strategies that are useful for both. Let’s find out how you can build a great debt collection strategy.

How to prevent bad debts


Bad debts are a nightmare no one wants to wake up to. If you are a small or mid-sized business, you might need to be prepared to make collection calls. But it may not come to that if you prevent yourself from giving out bad debts in the first place. Having a collection strategy will help you with that. Here are a few things that you can do:

1. Verify your customers’ background

Vetting a new customer helps prevent many problems. For one, it can help you save your business and potential default with your creditors. You can also maintain a positive cash flow if your customers pay on time. 

Including background checks in your debt collection strategy enables you to assess any risk, identify payment patterns and determine any possibility of conflict in the future.

Once you verify your customer’s credit history, you can then set down suitable terms of payment based on that data.

2. Ask for immediate payment

There are many ways in which asking for immediate payment can be worked out between both the parties involved. If you verify your customer’s credit history and do not feel confident enough, you could ask for upfront payment.

Alternatively, you could also map out a payment strategy in which the customer could pay a certain amount in advance and the rest later on. If you cannot negotiate an advance payment, then sending them an invoice as soon as the purchase is made is a good collection strategy.

3. Offer easy payment options

Sometimes, people may not have the time to go through a complicated payment process. As hard to believe as it is, people can avoid doing tasks, no matter how important, if they think they have to go out of their way to get them accomplished.

As a part of your debt collection strategy, ensure you offer as many payment options as possible. You could even ask debtors for their preferred mode of payment and include that among your options. The easier it is to pay you back, the more likely are people to chalk out a payback plan. 

4. Speak with the customer

Yes, as uncomfortable as it is to make those debt collection calls, it is a necessary evil. You could also aim to understand the customer and their challenges with paying you back.

There are several reasons why a customer may not have paid back their debt. They might have misunderstood the terms and conditions; there might have been a miscommunication on your end. 

Knowing and understanding your customer might actually save you the trouble of repeatedly following up for money and waiting for its return.

You May Also Like: Debt Collection Tips To Help You Make Better Collection Calls And Improve Recovery

5. Use a debt collection agency

When all else fails, it is time to ask for help. There is only so much that a business can do on its own to collect a debt, in addition to running the said business.

A debt collection agency is well equipped with collection strategies to recover as much debt as possible. Using safe, secure, and legal methods, a collection agency takes over your debt collection list and goes about recovering it. While they may charge a percentage of the collection as their fee, it is still worth the freedom from constant follow-ups and potential loss of money.

As a business, prevention of bad debt and protecting oneself against loss should be your number one debt collection strategy. As an agency, there are a few more collection strategies to explore. Let’s take a look.

Read Next: The Most Essential Tools Your Collection Call Centers Need To Improve Debt Recovery

Debt collection strategies to explore


1. Make payment easier

As discussed above, people are more likely to work out a payment plan when they know that they can choose from a range of payment options. There is a range of digital payment options to explore that help at least the younger generations pay back faster. Here are some digital payment options to explore:

  • Text to pay: You can share a text message with a payment URL through which a customer can easily make a payment. Schedule these messages every month to ensure payment is timely.
  • Mobile payment: Offer options such as paying through PayPal or Venmo so that they have quick and easy access to a repayment option.
  • Cards: Credit and debit cards are still among the top online payment methods. So make sure you have them available. 

To drive up on-time payments, email or text customers regularly encouraging them to repay their debt. Add call-to-action buttons in your messages that redirect them to payment pages. Use it as a means to share regular payment reminders.

2. Use updated communication channels

It has been observed that debt collection agencies are using outdated modes of communication to reach out to their clients. Phone calls, visitations, and other such methods work great in addition to more modernized digital outreach tools. A combination of these tools can increase your chances of success multifold.

Instead, a collection agency has much better chances of recovering debt by including digital outreach tools in its debt collection strategy. For example, text messages have a 98% open rate within 5 minutes of being delivered! 

Many younger people prefer being reached out through text messages or email as compared to calls. Debt collection agencies also report higher response rates through texts rather than calls. Use text messaging as a part of your debt collection strategy for better results.

Read Also: Use These Debt Collection Text Message Samples Today!

3. Use analytics to predict defaults

Human beings work in set patterns, and analytics seems to have caught on. By studying and observing past payment patterns of individuals, you can determine who is most likely to pay back a debt and who might default.

You can also track the current payment patterns of your customers, and analytics can pick up on any changes in them. As soon as a change is noticed, you might want to follow up and ensure everything is on track.

A good debt collection tip to remember is prioritizing going after high-risk defaults and knowing that you can afford to slow down on the low-risk ones. In the early stages, the aim is to retain consumers; in the late stages, the objective is to recover the debt.

4. Invest in a centralized CRM system

As a part of your debt collection strategy, invest in a centralized CRM system. The more data, analytics, and reports you have on your side, the better.

A centralized CRM system also helps when multiple agents are contacting a customer. For example, an agent can follow up with a customer one day, enter notes from the conversation, and the next time there is a follow-up, another agent can read through the notes and be prepared.

Taking notes and documenting every interaction with a debtor is of utmost importance since it can serve as your proof in case of any future dispute.

CallHub’s calling and texting software allow you to maintain lists, segment lists, and record notes from each conversation that can be easily accessed.

Read Also: Why Debt Collection Robocalls Are Hurting You (And How To Fix It) 

5. Keep an eye on social media

Social media provides valuable information that may not otherwise be available. Especially for skip tracing, social media becomes a powerful tool for gathering information.

You can find out where your debtor lives, where they work, who they spend their time with, and more. Through this collection strategy, you will find out your debtor’s whereabouts so that you can begin the collection process.

6. Communicate constantly

‘Out of sight, out of mind’ is an absolutely true saying. If you only resurface in the lives of your debtors when it is time for payment, one of two things can happen. First, they might have entirely forgotten about the payment. Second, they may not have either the cash or a plan to pay you back.

To prevent this, a good debt collection strategy that works is to stay in constant communication with debtors. Here are some things you can do to stay connected:

  • Schedule reminder text messages that remind debtors time and again about payment and when it is due. You could also send them friendly tips to make a payment plan or share compliance laws to help them out.

Remember, the only way you can send a debtor an SMS is if they have voluntarily opted-in for it. Check out CallHub’s SMS opt-in feature to resolve that issue. 

Read Also: How to Create an Effective SMS Debt Collection Campaign: Strategies, Tips, and Best Practices Included

  • Share newsletters through email and develop a good relationship with your customers. You can speak with them about any recent changes in company policy, government regulations, or payment plans.
  • Late payment messages and overdue payment texts prepare your debtors for the next steps to take. They will now expect you to move beyond text messages and probably seek them out. Sometimes people tend to forget, and late payment messages might just be what leads them to make a payment.
  • Voice broadcast schedules pre-recorded messages that go out as calls to customers. Since it feels more personalized than text, a voice reminder might just inspire action by creating a sense of urgency in the debtor.
  • Peer-to-peer texting is a great way to understand your debtors and keep them engaged. Engaged clients who feel at ease communicating with you will feel better about making a payment as fast as they can. 

Your agents can contact an entire list of clients at one go and engage in highly personalized conversations with all of them individually to understand their unique challenges.

7. Chalk out a payment plan yourself

A lot of people struggle with maintaining their finances. Defaulting on payments is a clear sign that an individual is struggling with managing their money. A good collection strategy might involve sitting down with a debtor and helping them make a payment plan.

They may not be aware of all options available to them and might be in a better position to pay back once a plan is laid out for them.

8. Be open to a settlement

As much as you would like to get every cent back, sometimes luck runs out. You need to decide whether you will be happy recovering at least a part of the debt owed rather than completely losing out on the payment. 

If it comes down to it, be prepared for a settlement and recover as much as you can. 

9. Review your policies from time to time

Last on the list of debt collection strategies is to review your own policies from time to time. It might be helpful to look inwards to determine what you could do differently to see different results.

What can you do better in policy, insight, people, processes, tools, technology, data, management information, and analytics and strategy? A periodic review will help you improve results.

What’s Next?

It is imperative for your business or debt collection agency to combine collection strategies with modern technology that brings you better results. Check out CallHub’s calling and texting software that is an excellent addition to your debt collection arsenal. 

Feature Image Credit: Karolina Grabowska