Debt Management and Collections System

Understanding AI’s Role in Your Collection Management System

June 25, 2021

Whether a consumer or business, the one thing both currently have in common is rising debt. According to a recent Experian report, total outstanding consumer debt grew to nearly $14.9 trillion – reaching a new record high. Unfortunately, not all borrowers are able to repay the money owed, especially with the economic downturn caused by the pandemic. Regardless of whether you owe money or are trying to collect outstanding debt, collecting debt is unpleasant – to say the least. This blog takes a look at debt collection from the collector’s perspective, what can be done to increase your ability to collect money owed, and how artificial intelligence (AI) and machine learning (ML) is modernizing today’s debt collection management system.

Traditional Debt Collection

If you’re like most companies, collecting debt is a long, tedious, and many times unrewarding experience – especially when debts remain unpaid and you’re left to absorb the cost. Let’s start by taking a look at the traditional processes of debt collection.

  • Invoice: Typically the first step in collecting money owed for products or services rendered, an invoice is sent that clearly states the amount owed and the due date. With the right billing system, you can reduce unpaid debt by automating the entire invoicing process.
  • Nonpayment: The payment due date comes and goes and you’re still waiting, thinking it’ll be here soon. But payment doesn’t arrive and you’re left to administer penalties and fees, which of course take resources and time away from other revenue-generating activities.
  • Reminder messages: Whether phone calls or emails, this step is a polite reminder to the delinquent customer that they haven’t fulfilled their end of the contract – payment. Again, resources are needed to fulfill this task.
  • Debt collection letter: The polite and casual initial reminders didn’t yield the payment you’re due. Most likely your next step will be to send demand letters, with each consecutive one becoming more demanding and forceful.
  • Collection agency: At this point you’ve exhausted all of your internal resources and it’s time to turn the unpaid debt over to a collection agency. While they may have some success, remember you will owe them a portion of what they collect, which can be 50%.
  • Lawsuit: Be careful with this one. Remember a lawsuit can be expensive and time-consuming. Be sure that the amount of money owed is worth the time and expense of going to court.

At this point, you may be thinking there has to be a better way for me to collect money owed – and there is!

A New Era For The Debt Collection Management System is Here

Yes, there is a better way to be paid in a timely fashion. To start you need a cloud-based collections platform that enables you to streamline and automate your collection processes. It also needs to integrate billing and payments in a way that minimizes revenue loss, optimizes employee productivity, and improves customer satisfaction and retention. Along with your cloud-based billing system, it is becoming increasingly important for you to incorporate AI and ML. Not only will these technologies give you the results you desire, but it will help to keep customers loyal. Let’s dive under the hood of AI and ML to see how these technologies are helping companies, like yours, implement a collection management system for delinquent debt.

Already making an impact, most people interact with AI and ML on a daily basis. Rideshare apps like Uber and Lyft rely on ML to determine the cost of your ride, minimize wait time, and reduce detours during your journey. Digital voice assistants like Alexa, Cortana and Siri are driven by AI; mobile check deposits and even the products you purchase on Amazon leverage AI and ML. One might say that it was just a matter of time before these technologies made their way into collection management.

Essentially, AI and ML act as a bridge between you and the customer, enabling you to:

  1. Gain earlier notification of delinquency: Throughout history, debt collection has been primarily reactive. Once an account went delinquent, collection processes began in an attempt to acquire the unpaid debt. ML, a subset of AI, analyzes huge amounts of data to determine factors and patterns that were previously not taken into consideration when determining debt risk. As conditions change, ML incorporates the new data, providing you with the ability to analyze risk in real time.
  2. Improve categorization of borrowers: When categorizing borrowers, they will typically fall into 1 of 3 categories – low risk, medium risk, and high risk. This traditional method isn’t able to handle nuances within each of the categories, which may change a customer’s risk factor. ML enables you to create distinct customer profiles, which gives you the information needed to determine if the borrower will take the necessary steps to resolve delinquencies on their own or whether you will need to use proactive measures to collect money owed. And since AI is a continuous learning platform, the profiles created become even more precise over time.
  3. Build effective communication channels and personalize repayment plans: The traditional methods of collecting unpaid debt relies on phone calls and emails. What if you could reach delinquent customers on the platform of their choice with a message that is sure to get their attention? With AI and ML this is now possible. Using ML you can analyze when the customer is accessing your app and/or website. This will help you in determining their preferred communication channel and time of engagement. AI can also be used to enhance customer engagement by analyzing calls made to you by the customer, which will help you in determining which scripts and offers will yield the best response and ultimately money owed.

AI and ML are revolutionizing debt collection, opening the door to a plethora of new collection management system possibilities.

Transforming Your Debt Collection Management System

AI and ML have the potential to reduce outstanding debt, transform how collections are handled, lessen operational expenses, improve resource productivity, and even improve the customer experience during the collections process. These technologies are now enabling organizations to be more proactive in a way never before possible.

We know that one of the greatest challenges you face is managing outstanding debt. At BillingPlatform we’re focused on helping you reduce collection cycles, improve cash flow, and provide a frictionless customer experience – even when collecting outstanding debt. Contact us today to learn more about how we can help modernize your collection management system.

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