Debt collection software or debt collection agency? How to choose

Overdue accounts, missed payments, and customers falling behind is inevitable. But what’s the best way to manage them? 

Let’s explore debt collection software and debt collection agencies to help identify the right fit for your business. 

Now if you’re thinking about debt collection management software, it’s likely that you’re planning to handle overdue accounts internally. Most businesses go in this direction with one goal in mind:

They want to keep 100% of recoveries - but often, this isn’t the case. 

Setting up an internal collections provision means that you get to keep everything you collect. Happy days, right? Not quite. There’s a number of dependencies that influence collections outcomes - and more importantly, cost to recover. Often, the expenses of software, headcount and legal make it less cost effective to collect accounts through internal efforts. 

So why do businesses opt for this route? Let’s explore all the requirements involved with debt collection software.

Technical integration with ARM software

Your debt collection software will most likely need to be integrated with your ARM software and other internal programs. Now this can go smoothly, but it’s also possible to end up with a complicated system, adding to operational complexity and expenses. In the long-run, a disorganised tech stack will increase the likelihood of future technical issues, delaying recoveries and impacting customer experience.

Greater risk 

Servicing overdue accounts in-house gives you control over the collections experience, but it also means you assume full responsibility for that experience. Not just from a brand and reputation perspective, but also in terms of security and compliance. In a highly regulated environment any collections practices must be compliant, fair and ethical to protect your customers, and your reputation. 

Increased operating expenses

Running any internal operation requires financial investment. Aside from initial setup costs, ongoing expenses such as software licensing and upkeep all must be accounted for. It’s also likely that you’ll need additional headcount or contractors to ensure your software continues to run smoothly. Particularly as overdue accounts age, these mounting overheads can make in-house recovery operations a losing proposition.

The takeaway

Capability does not equal competency. Debt collection software is ultimately just a tool. You still need to dedicate resources to get the most out of it. Consider who will handle customer experience, who will ensure compliance, and who will write your email templates? 

Most importantly, how will you know if you’re getting the most out of your overdue accounts while still preserving your customer relationships? This is where a partner comes in handy.

Partnering with debt collection agencies 

When you decide to partner with a collections agency, the degree of benefit is reliant on who you engage. There’s a lot to consider - their expertise, collection strategy and overall attitude to consumers in debt. 

The most crucial requirement is a collections agency you can trust to maintain your customer relationships. Look for a partner that uses technology such as machine learning, digital channels and self-serve. Modern collections agencies truly value the customer experience, as opposed to the ‘collect at all costs’ mindset of some traditional agencies. The right agency will demonstrate how their collections go the extra mile to support customers from the get-go, which goes hand in hand with protecting your business’s reputation.

The benefits speak for themselves:

• Core focus on customer experience: Less than 1 in 4 Finance leaders who handle recoveries internally say their customers are satisfied with their collections experience. Creating dissatisfied, frustrated customers isn’t the goal for any business. Let the experts look after your customers - acting as an extension of your brand and reputation, supporting them with dedicated focus.
• Little to no impact on operating expenses. Since a debt collection agency runs their own operations, there’s a minimal cost to your business. 
• Limited software integration required. Instead of having to configure, integrate, and maintain your own debt collection software, your partner will handle their own. Expect to work with their implementation team to make the necessary connections. This can be a traditional CSV file and SFTP transfer, or increasingly, API integrations.
• Contingency fee model. Most debt collection agencies operate on a contingency fee model. This means they only collect a fee based on the amount they are able to recover. 
• Insulation from compliance and reputational risk. It’s your partner’s responsibility to ensure they meet all regulatory and compliance requirements. Your role is to provide oversight and conduct due diligence, ensuring your customers are in safe hands. 
• Sophisticated collections strategy. Advanced collections partners will have layers of expertise. They’ll understand the granular aspects of the collections customer journey and your industry’s macro factors. 
• Increased scalability: Most businesses lean towards a collections partner when their in-house operations are at capacity. Typically, this happens when operating expenses exceed the contingency fee paid to agencies. With the cost of headcount and software ever-increasing, this tipping point can arrive sooner than you think.

The number one consideration

Finding the right partner for your business is no small feat. The number one consideration? Customer experience. This is what sets collections agencies apart. When it comes down to it, collections are an extension of your own customer experience. You want to trust that your customers are in safe hands, and that their relationship with your brand is preserved. Look at how potential partners value, create and consistently optimise their customer experience.

Consider intelligent debt collection

Despite 75% of US adults never answering phone calls from unknown numbers, traditional collection methods rely on repeat outbound calls and mail. In addition, new regulations such as Reg F in the United States are putting increased restrictions on how, when, and how often customers can be contacted about their overdue accounts. 

This is where intelligent debt collection comes in. 

Intelligent debt collection creates a personalised collections journey for every single customer, using an omnichannel approach. This empowers customers to resolve their debt at their convenience, maximising recoveries and customer satisfaction.

Debt collection software or debt collection agencies - which is right for you?

Ultimately, the choice between servicing overdue accounts in-house or partnering with a debt collection agency depends on a number of factors, and there’s no one right answer.

Many businesses use a combination of both, handling early stage accounts in-house and then placing them with collection agencies after a certain period of time has elapsed, commonly after the account has been past due for 90 or 180 days. That said, greater  results can be found by bringing debt collection agencies in far earlier in the lifecycle of an overdue account.

What’s clear is that as your business grows, long-term sustainability means you need to partner with an agency that can scale with you when software can’t. Consider all the above with your customer experience, brand and reputation and future collections needs in mind.