Three key challenges in collecting pre-charge debt


Editor’s Note: This article originally appeared on the TrueAccord Blog and is republished here with permission.

The management of accounts and the regularity of payments are essential elements of the functioning of a business. This is especially true for small businesses where several small payments (or one large payment) overdue can make a huge difference. Many businesses will put off hiring a collection agency until they have overdue accounts rather than forming an early-stage partnership that can grow as needed.

When it comes to keeping payments consistent, everyone involved, from lender to consumer, would rather keep their accounts up to date than not. When consumers’ financial situation is affected and they are unable to make payments for a long time, their delinquent accounts are “written off” and viewed as a loss by the creditor, and sometimes a partnership with a collection agency. begin.

This is the model for many businesses, but collections can start sooner and account balances can be settled faster for everyone’s benefit. So why aren’t more companies looking to cash in in the world of preloading? Here are three major challenges that make managing early-stage collections (that is, pre-debit) more difficult to collect than post-debit balances.

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What is the difference between a debt before and after the charge?

In order to understand the difficulties that accompany pre-charge collections, we must first understand the clear differences between pre and post from a creditors’ perspective.

Preload disabled

As mentioned above, pre-charge or early stage debt can include late payments, past minimum payments, late fees, and interest. These payments had specific due dates and specific amounts due on those dates that the consumer failed to meet.

Consumers who are unable to meet these minimum monthly payments or similar conditions are likely to have their line of credit limited, additional interest and fees, negative entries on their credit report, and lose access altogether. to credit. Once a late payment extends beyond a certain window of time (typically six months from the date of default), the account is “debited”.

After charging

Post-billing debits (also known as late-stage collections) consist of the total account balance plus interest and charges accrued after the customer has stopped making payments throughout the payment period. preliminary sampling. Late-stage payment plans can offer a bit more flexibility in their payment terms.

Part of the reason is that the creditor is not sure whether or not they can recover the missing payments and the default has already been added to the consumer’s credit report during the pre-load phase. As long as the consumer has a payment plan in place, there is little need for a business to pursue other actions such as filing a complaint.

Some of these differences highlight the challenges for businesses and debt collection agencies looking to collect upfront payments.

Minimize turnover rates

The key measure in the early-stage collections space is the turnover rate of your accounts. Turnover rates measure the percentage of accounts that move from one tranche to the next, usually in 30-day increments (for example, 60-day late payments can move to the 90-day tranche and increase the rate) .

In the post-collection space, where collection volume is a leading indicator of recovery, it may be easier to judge the efficiency and performance of collection efforts. Preloading work requires quicker action, as accounts can move quickly from one compartment to another.

Urgency of deadlines

Part of the challenge of reducing turnover rates is rooted in the more urgent nature of early stage collections. Accounts that have reached an advanced stage of collection are 180 days or more past due and have already been reported on a consumer’s credit report.

Preloaded accounts may involve collecting payments on accounts that are 1 or 2 days past due. The longer these accounts go unpaid, the more they hurt the financial results of the creditor and the more they can accumulate interest, late fees and negative credit reports for consumers. There is an urgent need for the lender to remind the consumer of the missed payment obligation and to understand if a consumer is in financial difficulty and for the consumer to avoid another default or even a default.

Increase in call volume

Traditional debt collection agencies that work in the after-billing world are already struggling to meet huge contact requests. While digital debt collection agencies and tools can help drastically reduce the need for agent-driven call centers, collections pre-invoicing requires additional support that benefits from a digital strategy.

Due to the urgent need for collection at an early stage and the aggravating nature of late fees and rising interest, a higher percentage of consumers are turning to the option of waiving late fees or benefiting a one-off reduction in their aid. In order to meet the growing demand from these communication agencies, they must prepare to evolve their teams and systems appropriately and to manage growing consumer needs.

To eyes outside the collection industry, debt collection may seem uniform, but adapting to working with pre- and post-charge debts requires substantial changes in a business or agency’s infrastructure. Partnering with a company with an established history of effective scalability and growth can ease the transition and help your business grow.


Naomi C. Amerson