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The ‘psychology’ of collections

Article provided by Accountability

The debt collection industry ranks second on Forbes’ list of the most common consumer complaints by sector.

Some of the most common tactics used by creditors are intrusive, harassing and sometimes even threatening.

These actions, more often than not, are ineffective, which leads to further rebellion against paying bad debt, and are in most cases also illegal.

Because of the aforementioned, creditors and collection agencies have a bad reputation, are seen as bullies and vilified in the mainstream media.

Many businesses are re-thinking their communication methods and are changing their strategic approach in dealing with debtors.

One of the strategic methods currently being utilised by businesses is the application of Industrial Psychology practices in the workplace.

Industrial Psychology is the science of collating and applying data with regards to human behaviour in the company.

An example of this would be the analysis of a collections department by doing personalized tests to predict and measure employee performance.

This data would allow employees to access otherwise unknown areas of customer service, such as how communication with debtors can directly affect a collection’s outcome (social skills), tools to research and moderate emotions, language prior to contacting debtors and most importantly, the mitigation of problems before the relationship with your customer is lost.

While hiring an Industrial psychologist to analyse your company’s receivables and collections is a valuable investment for some businesses, small to medium-sized businesses might be interested in a more cost-effective, direct approach such as Transactional Analysis.

Transactional Analysis is a theory of human development, personality, and communication. The underlying philosophy is one of mutual self-respect and caring, the belief in people’s ability to be responsible, think for themselves and make their own decisions.

Being able to identify a debtor’s psychological state during the collection process is essential to reaching a satisfactory resolution, ideally without losing the customer.

To be successful, transactions must be complimentary, with both parties (creditor and debtor) on the same page; if not, the conversation either changes in its nature or ends abruptly and unsatisfactorily for the creditor.

It is important to try and obtain an, “I’m OK, you’re OK” strategy when communicating with debtors. This would entail establishing a common emotional connection/grounding or else nothing will be resolved.

There are three egos at play during communication. The Parent (judgemental and abrupt), the Adult logical and objective) and the Child (childish and unmotivated).

When the debtor is communicating in a judgemental or controlling way he/she is most likely in what is referred to as the ‘Parent State’. Most collection attempts will fail when the debtor is in this state.

Communication during the abovementioned state is usually dominated by the debtor using tactics such as making broken promises and excuses and even lying just to end the call. In this case, it’s of very little use to carry on, rather just end the call politely and try again at a later stage.

If, for example, the creditor is in the ‘Parent State’ and the debtor is in the ‘Child State’ the negative implications are obvious, you are at a different communication level and nothing will be resolved. You have to rather try to stay on the same page with the debtor to achieve maximum emotional connectivity, the ‘Adult State’.

The ‘Adult State’ allows a debtor to be objective and use logical thinking. For your collection attempt to be successful, this is your goal state.

Collections carried out in the ‘Adult State’ are likely to be calm and dispassionate. The creditor will be able to negotiate and mediate with the debtor and thereby come to a satisfactory outcome. Studies have shown that, when a creditor deals with a debtor in this state, the debtor behaves more amicably and resolutions are easier to find.

The opposite of the ‘Adult State’ is the ‘Child State’. There is no reasoning with a debtor in this state. When a creditor engages communication with a debtor in the ‘Child State’ it is best to end the call and have another team member or supervisor call back within 48 hours.

This action has the possibility of triggering the debtor into the ‘Adult State’ by allowing them to first cool off and then find someone to reason with. The aforementioned has the potential to resolve most situations.

Personal relationships and creating a sense of joint responsibility in business are essential, especially in collections as they form a vital role in business growth and sustainability.  Should your continued attempts at collections be unsuccessful, it is time to reconsider your collections strategy.

Protect the Future of Your Business by Reducing the Risk

Accountability offers its Members risk mitigation and collection services aimed at supporting your business’ collections team.

Members benefit by being in a position to make more informed decisions due to having access to information they can trust.

Through our relationships with the major Credit Bureaus in South Africa, Members have access to credit-active databases of more than 22 million consumers and 3 million businesses. Accountability assists Members from diverse industries in managing their risk and relationships better throughout their customer’s credit lifecycles through the following services:

  • Intra-Member Networking
    • Access to a collection of data and pre-qualified leads.
  • Downloads and Advice
    • Members have access to several downloadable documents. Where possible, we assist Members by providing practical advice.
  • Security Alerts
    • In addition to highlighting habitual defaulters, Members are informed of the scams currently in circulation.
  • Accountability Stickers
    • Members can purchase (physical or digital) stickers which, when placed on statements or invoices, indicate that the Member is equipped to recover unprescribed debts and mitigating risk.
  • Default Management
      • Notice to Debtor (Form – A)
      • Add to Database (Form – B)
      • Update Database (Form – C)
  • Debt-Collection Services
      • Accountability is affiliated with registered debt collectors and all our Members have access to this service through our website portal.

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Accountability is a proud Partner of the NSBC.