Tailor Your Collection Strategy for Changing Economic
Jul 20, 2023
Like most businesses, collections firms can be impacted by changing
economic cycles—fluctuations in the economy from expansion to contraction.
Understanding how economic cycles impact your firm and recognizing signs of
changes can help you minimize the impact to your business and, ideally, remain
Impact of Economic
Depending on the phase, you firm may face increase payment plan defaults,
a shift in the types of debts available, and changes in government regulations.
Your clients may also experience reduced profitability. Maintaining strong
client relationships may require you to adapt your strategies to align with
Inflation decreases the purchasing power of money, which can impact
collection firms in a several ways.
value of debt. Since inflation erodes the
value of money, the value of the debt owed by debtors may decrease. This
can make it challenging for collection agencies to recover the full value
of debt incurred during a period of lower inflation or deflation.
consumer purchasing power which
makes it more difficult for consumers to pay off their debts. This can in
turn affect the collection agency’s ability to collect debts.
costs, such as higher employee
salaries, technology, and infrastructure can put pressure on profit
margins. Agencies may have to adjust adjustments their operations,
pricing structures, or resource allocation to maintain profitability.
in regulations, like increased interest rates
or other financial policies can impact agency operations.
in consumer behavior. Consumers may
prioritize meeting basic needs over debt repayment, which can lead to
delayed or reduced payments.
Declining economic activity can affect account recovery and client
relationships. Collection agencies may experience:
demand for collections services,
as fewer businesses and individuals may be in need of
debt collection services. Collection agencies may face challenges
maintaining client relationships or renegotiating contracts.
ability to collect debts, since consumers and businesses may have less disposable
income. Consumers may also face loss, lower incomes, and bankruptcy, which
can impact recovery efforts.
access to credit can impact the collection
agency’s ability to finance its operations and pursue legal remedies for
unpaid debts. It can also limit your ability to invest in technology, training,
and human resources.
Economic recovery and
After a recession, the economic experiences positive
growth and improvement. There are opportunities and risks to watch for
during this period.
since more business may enter
the collections industry as the economy recovers. This can make it more
difficult for collection agencies to win new business and maintain their
in consumer behavior. As the economy
recovers, consumers may increase spending or shift their priorities.
demand for collections services,
as spending increases, more people may borrow more and subsequently
default on debts.
in credit availability can improve an
agency’s ability to finance its operations and pursue legal remedies
for unpaid debts.
in technology often coincide with
economic recovery. Consider investing in data analytics, digital
platforms, and automation tools to streamline processes, prioritize
high-value accounts, and optimize communication with debtors.
Strategies for Economic
Peak and Downturn
Closely monitor economic indicators like unemployment rates, GDP growth,
interest rates, and consumer confidence. Staying informed allows you to
anticipate changes and adjust strategies accordingly.
During the peak of the economic cycle, collection agencies may be able to
take advantage of favorable economic conditions to grow their businesses and
marketing efforts to attract new
clients. During the peak of the economic cycle, businesses and individuals
may be more likely to incur debts, which can increase demand for
collection agency services.
services to meet increased demand.
For example, agencies might offer additional payment options to better
partnerships with other businesses or
organizations to reach new clients.
in technology that can help improve your
operations and increase efficiency.
your firm from competitors by
offering superior customer service, innovative strategies, or specialized
expertise to remain competitive.
One of the biggest risks that collection agencies should watch out for at
the peak of the economic cycle is the possibility of an economic downturn.
your client base by working with a variety
of industries and types of clients. This can help mitigate the impact of
an economic downturn on their business, as different industries may be
strong relationships with clients to
retain business. Build loyalty and trust by providing excellent customer
service and being responsive to customer needs.
for new business opportunities.
Be proactive in seeking out new business opportunities, for example by
expanding services or targeting new markets, even during an economic
and optimize operations to
increase efficiency and reduce costs. This might involve streamlining
processes, automating tasks, or identifying areas where they can cut
Prepare With Flexible
Regularly assess the economic environment as part of your regular
business planning. Being agile, proactive, and adaptable can help you
successfully navigate each part of the changing business cycle.
Review and update your risk assessment models to account for changing
economic conditions. This way, you can identify high-risk accounts and adjust
your strategies, for example by offering more flexible repayment options to
consumers. Consider using automated payments solutions like HealPay’s Treatments to
target accounts and offer customized payment options that fit the consumers’
needs based on the current economy.