Collect with Kindness

There’s an old saying, 'Kill them with kindness.' A modern version might read, 'Collect with kindness.'

As Janice Horan and I discussed at recent FICO Forum events in Europe, those in debt experience profound humiliation and react badly to brute-force collection techniques. The cumulative effect of all collection efforts reinforces the sense of humiliation.

This sense of humiliation can drive borrowers to seek insolvency and bankruptcy protection, and can cause borrowers to avoid direct contact with the lenders. This is especially true in markets where changes in bankruptcy / insolvency laws have reduced the social stigma attached to people who seek these protections. 

Collectors who are ‘nicer’ to delinquent customers got paid -- certain credit card companies have purposefully employed this tactic and adopted a friendlier, more conversational tone with customer on the phone. By contrast, those who have maintained tough tactics have often found themselves the object of customer complaints and government admonishments. (The Office of Fair Trade and the Financial Ombudsman in UK have worked with consumer counselling organisations to 'clean up' collections.)

One interesting wrinkle on the 'be nice' theme is to provide a guilt-free automated channel. The anonymity of internet payment portals is proving very attractive and leading to higher payment amounts, higher rate of kept promises and lower collection costs. These payment portals have analytics and decision rules sitting behind the scenes to determine the range of 'negotiated' payment arrangements that the portal will accept from a debtor.

The debtor is more engaged because the portal is anonymous, and the debtor dictates their time and place of interaction. This allows the borrower to feel more in control and reduces the sense of humiliation.