When collections is treated as arrears, banks miss the real risk

Treating collections as a failure of the customer relationship is a mistake that costs retailers money and future loyalty. For businesses offering in-house or third-party financing, the 'collections' phase should be viewed as a customer service touchpoint rather than a legal process. When a customer falls behind on payments, it is often a temporary setback. If you treat them like a delinquent account immediately, you lose their lifetime value. If you offer flexible restructuring or proactive communication, you keep the customer for life. Modern data shows that traditional 'arrears' management is reactive. It waits for the payment to fail before acting. Merchants should instead look for early warning signs in payment behavior to offer help before a default occurs. This shift from 'recovering debt' to 'preserving the relationship' is vital for high-ticket industries like furniture or home improvement, where repeat business and word-of-mouth are essential. By humanizing the collections process, you reduce the stigma for the borrower and increase the likelihood of full repayment. This approach also helps navigate the tightening regulatory landscape around fair debt collection practices.

Source: Banking Dive

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