Debt collection is a top priority for businesses during the post-pandemic period, as the increased vulnerability of the economy affects all sectors. Many companies prioritize debt collection, as the situation will be alleviated once the world returns to normal operation.
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Segmentation In Debt Collection
The post-pandemic economic crisis has put a major strain on debt collection efforts. With the influx of debtors not in arrears, it’s difficult for debt collectors to determine which customers to target. Moreover, without accurate market data, they may have missed out on a large segment of customers who are more likely to pay their debts on time. This group includes people who have suffered from unemployment or furloughs or are experiencing significant income declines.
Traditional segmentation methods rely on historical data to identify key characteristics of debtors. Although some lenders use simple scorecard-based models, most still use outdated ones that are no longer relevant. Further, these models don’t consider differences in debtor income by sector or region. While some debtors have experienced job losses, others have been lucky.
Priority Plus Financial believes that debt collection services must find innovative ways to reach out to borrowers in various channels in today’s competitive market. One way to improve service is to create an omnichannel approach. This strategy allows collection personnel to provide services to debtors across multiple channels, such as voice, direct digital API, online, mobile, and e-docs.
Incentives And Penalties To Encourage Restructuring
Providing incentives to creditors and debtors to resolve their debts will make temporary restructuring mechanisms more effective. However, these measures need to be crafted within the constraints of the fiscal and financial regulatory frameworks. The combination of incentives and penalties can improve debt collection efforts while incentivizing cooperation in restructuring negotiations.
The COVID-19 pandemic has created a unique economic challenge for many countries. Global debt in 2018 was 226 percent of GDP, with three-fourths of that total attributed to household and corporate debt. The global COVID-19 pandemic is expected to exacerbate the large debt distress level, particularly in the household and corporate sectors. This could negatively affect the financial system through an increase in non-performing loans (NPLs). Introducing extrajudicial enforcement mechanisms has been a successful solution for some countries. These mechanisms reduce the time it takes to recover secured claims while maximizing the value for the parties involved. Furthermore, reforms of the corporate insolvency regime should focus on promoting the rehabilitation of viable enterprises and the prompt liquidation of non-viable ones.
Suspension Of Debt Collection Activities
Suspension of debt collection activities post the pandemic is a response to the unprecedented changes caused by the COVID-19 virus pandemic that struck many developing countries worldwide. The G20 and Paris Club have agreed to a time-bound suspension of debt service payments. However, questions remain about its scope and application. Governors of several states have taken action to reduce debtors’ exposure. In Iowa, for example, secured creditors are prohibited from seeking judicial seizure of personal property. While self-help repossessions are still allowed, all garnishment actions are suspended, except those related to domestic support obligations.
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