Does your collection agency understand debtor behavior?

Those of us working in Accounts Receivable or in Credit know that enlisting a commercial collection agency can provide a valuable lifeline. While outsourcing collections can increase the short-term amount you recover, is it potentially damaging your client relations in the long-term?

If your current agency has only a passing knowledge of debtor psychology – the answer is an astounding YES!

That’s because the reasons that customers fail to pay are often multi-faceted. A deep understanding of debtor behavior is therefore required to ensure that customers of all kinds progress successfully to payment. To accelerate recovery rates without alienating clients in the process, you’ll need to ensure that your collection agency is conducting negotiation strategies based on sound collection psychology.

Communicating Professionally

Effective communication is vital for every professional involved in commercial collections. If you find yourself responding forcefully to a hostile debtor, or you discover that your collection agency is taking an overly aggressive approach, it’s time to consider the following communication strategies which will be key on every collection call.

• Empathize – Rather than using threatening or intimidating language, your collection agents should focus on showing empathy and understanding. Highlighting that they understand the debtor’s situation can help to build trust and increase willingness to make payments.
• Be Clear – By using simple language, and presenting the facts clearly, you will avoid raising customer anxiety and tensions. Moving at a calm pace on the call will also help to foster trust with your debtor. Avoid using technical words and phrases that may not be understood, and ensure you have all the necessary facts before making a call.
• Listen – Pay attention to the customer’s individual circumstances and unique financial situation. This not only builds trust, but also allows for both sides to tailor a payment solution which is much more likely to be successful. Remember, effective collection calls might involve more listening than talking, as you’ll be more likely to achieve an outcome to please both parties.

Selecting a collection agency to work on your behalf means finding a trusted partner. You want your collection agency to work as an extension of your brand and business, so make sure to dig deep into their negotiation strategies to understand how they will communicate with your customers. Explore the tone of communications and the rapport that they aim to build, and don’t be afraid to ensure your brand voice comes across in both.

The Psychology of Negotiations

When it comes to collections, achieving a positive outcome will look different for each party involved. For you, it means collecting the maximum amount while maintaining good relations. For the debtor, it means avoiding the consequences of not paying the balance.

To reach the optimal resolution for everyone involved, you’ll need to employ skillful negotiation strategies. This means any collection agency you employ should be adept at working with clients to channel their emotions and guide their decisions into a constructive solution.

This is largely influenced by how the choices are presented to your debtor. It’s often a question of understanding what will drive their decision to pay, ultimately presenting the right offer, to the right client, at the right time.

Helping debtors come to the right decision involves the following five key steps:

1. Identify your shared goal. Namely for you to collect the balance due and for them to avoid further consequences.
2. Present the options. Lay out the facts, present the choices, and allow them to weigh their options.
3. Let them consider the consequences. Help the debtor to assess the consequences, stressing that inaction is the most damaging option of all.
4. Urge them to decide. Encourage the debtor to make a decision and take control of the situation today.
5. Evaluate their decision. Help the debtor to reflect on their choice and feel positive about the outcome.

Enlisting Expert Collections Support

By understanding the psychology of the debtor, your chosen collection agency can channel conflicting debtor emotions into a positive sequence of decisions.

For those companies already working with a commercial collection agency, that means you’ll need to think carefully about how they balance any returns achieved through aggressive collections negotiations with maintaining positive client relationships – something that is essential to the long-term success of your business.

Our expert team at Brennan & Clark is well-versed in incorporating debtor psychology to successfully negotiate returns up to 20% above the industry average, while maintaining and often improving valued client relationships. For more advice on debtor psychology and information on how Brennan & Clark can help you increase net returns with a dedicated collections strategy, talk to us today.