Socially Responsible Receivables Management
Why we look beyond the debt to see the individual
Balancing the Books with a Conscience: Explore how ethical debt recovery strategies are not just good for the debtor but also make solid business sense, fostering healthier financial ecosystems for all involved.
Climate change, human rights violations in supply chains, consumer-unfriendly communication or a lack of transparency in corporate governance - the list of potential ESG risks is long. And the requirements for compliance are growing.
The EBA guidelines applicable throughout Europe stipulate that banks must keep an eye on sustainable finance. While public perception often focuses on environmental aspects, social aspects also play a major role, particularly in receivables management.
Starting in 2024, banks and lenders are mandated to prioritize ESG criteria when managing debt. This is stipulated in the EBA guidelines, which are valid throughout Europe and must now be transposed into national law. AI and automation play a crucial role in empowering banks, integrating the "S" aspect of ESG-compliant receivables management.
However, the consistent implementation of better consumer protection is not just an annoying duty. Aryza expert Anke Köster, actually sees many benefits. "Customers who receive genuine support in difficult times are more likely to become repeat customers, so it is a strategic imperative for banks and lenders to integrate these principles quickly." Companies must now devise a sustainable strategy for dealing with late payers.
An important factor in social receivables management is debtor communication. The receivables management expert recommends entering into a dialogue with the debtor as equals in order to find amicable solutions, for example initially offering a payment pause or a payment plan.
However, it's not just the tone that plays an important role in communication, but also the individualised approach via the best possible channel: "Addressing an 80-year-old via WhatsApp can be a stumbling block, and it can be just as difficult to write to an 18-year-old by post," says expert Anke Köster. But what is the best way to do this?
The first step is to categorise customers into segments, for example debtors who are simply forgetful and stressed, others who don't want to pay or simply can't pay. "Categorisation can be based on many criteria, for example payment score, profession, income, previous insolvency or simply the amount owed," says Aryza Expert Anke Köster.
Once a corresponding segmentation has been set up, individualised communication can be automated on the basis of defined rules.
The use of artificial intelligence helps to optimally individualise debtor communication and payment plans in terms of approach and timing, thereby significantly improving the repayment rate in a second step. "Our research has shown that the repayment rate has improved from 46% to 69% following the use of AI," explains Aryza expert Anke Köster.
The time to address the issue of social receivables management has undoubtedly come. The Covid pandemic, the Ukraine conflict and the energy crisis have recently exacerbated the situation. Rising credit and mortgage interest rates are squeezing the wallets of house builders, and more and more people are no longer able to pay their bills. "Many people are having problems with their cost of living and are seeking support from financial institutions," says Aryza expert Anke Köster.
In the corporate sector, the number of insolvencies has recently increased across Europe. It is only a matter of time before the problem also affects consumers.
Aryza Collect revolutionizes the management of overdue loans by providing comprehensive support in processing complexities at all levels. Benefit from efficiency-enhancing automations such as workflows and customizable processes. Efficiently manage master data on insolvencies, collateral, and objects, or document and process enforcement actions and all types of collateral realization from one integrated application.
Key Advantages for an Efficient Collection Process
Comprehensive Dashboard: Stay informed with integrated reporting, including a dashboard featuring clearly structured diagrams and key figures.
Practical Functionalities: Enhance user experience with features like the extended payment plan.
Artificial Intelligence: AI functionality integrated into the software solution assists users in decision-making.
Optimal Processes: Convenient task lists and case-based processing ensure an optimal workflow.
Discover more about Aryza Collect: Download our brochure now.
In our endeavor to redefine debt collection, we focus on the core principles of social responsibility. Our method is not just about recovering debts, but about reimagining the process through a lens of empathy and ethics. We consider the unique circumstances of each individual, ensuring that our practices are not only effective but also compassionate. This approach is a testament to our belief in the power of ethical practices in finance. By embedding ESG criteria into the heart of our operations, we aim to strike a delicate balance between financial recovery and moral responsibility. Our vision is to transform debt collection into a process that respects the dignity of all involved, creating a ripple effect of positive change in the finance industry. This commitment to social responsibility is a guiding principle in all our endeavors, shaping a new narrative in financial interactions.
Transparency plays a central role, as the income and expenditure situation for many debtors is often unclear. Open banking systems help to present income and expenses, providing insights into cost-saving opportunities and suggesting more cost-effective alternatives for energy or telecommunications providers.
Automated workflows based on data not only make interactions with debtors efficient but also increase productivity on the creditor's side. An automated contact with tailored debtor segments ensures targeted communication based on clearly defined rules.
Different debtors have different channel preferences in communication, and it is essential to bring both together. The 80-year-old might be better informed through letters or phone calls, while the 18-year-old prefers communication via WhatsApp. Segmentation and automation also help in this aspect.
A "One size fits all" communication often poorly reaches debtor segments. Therefore, targeted communication is necessary. The potentially forgetful debtor needs to be addressed differently than the notorious payment defaulter.
A fair approach to fees is increasingly demanded by authorities and regulators (see Compliance). Clear and simple communication, as well as prioritizing the repayment of the principal debt over fees and default interest, are possible approaches.
Compliance is essential, as regulators such as BaFin and FCA demand ESG-compliant and customer-centric debt management. Transparent data enables seamless documentation of one's own ESG efforts and provides excellent material for PR and external communication.
Debt management in an Excel spreadsheet is often not up-to-date. When multiple employees work in the spreadsheet, synchronization is lacking. An software solution enables the implementation of all the points mentioned above, helps in calculating optimal installments, and can offer payment breaks.
