The can’t pay/ won’t pay conundrum
They say there are two types of customers in collections: those who can’t pay and those who won’t pay.
That is, of course, a gross oversimplification, but it can be worth thinking about nevertheless. When a well-intentioned customer is unable to meet their debt obligations, the ability to correct that situation resides largely with the lender. The borrower’s circumstances are largely fixed, so the lender must find ways to restructure the repayments so they work within those constraints - collections strategies should focus on designing a repayment schedule that works for both parties while adjusting the customer’s spending patterns to avoid relapses in the future.
When, on the other hand, a customer of sufficient means to meet their debt obligations chooses not to, the lender must seek to adjust the customer’s attitude towards repaying the debt, rather than adjusting the repayment terms. Now, in the old days, lenders used to think that the best way to change a reluctant payer’s mind was by increasing the level of aggression - he who shouts loudest, gets paid. But, as we heard in episode seven of How to Lend Money to Strangers, more and more lenders are realising that better processes attract more payments - he who makes collections easier, through online portals and customer-focused design, gets paid first.
But more generally, collections strategies in ‘won’t pay’ situations can follow one of two broad approaches, either emphasising the benefits of paying or emphasising the negative implications of not paying. If a customer in the early stages of delinquency displays the characteristics of someone unwilling to meet their debt obligations, education might be sufficient to correct the situation. The benefits of correcting a delinquent account could include the waiving of penalty fees and interest, retaining access to further advances, etc. However, where softer strategies have been unable to halt a customer’s descent into further delinquency, stronger strategies may be needed. These would include strategies that emphasise the negative aspects of defaulting and include the acceleration of the involvement of internal and external legal representatives.
Despite the importance of differentiating between these two broad customer groupings, it is not always easy to do so. One useful tool, albeit a slightly reactive one, is the “can’t pay/ won’t pay” matrix which makes some assumptions based on the consumer’s broader payment behaviour. A customer who agrees to a promise-to-pay can be considered “willing to pay”, while the refusal to commit to such an arrangement would characterise a customer as “unwilling to pay”. In more advanced systems, you could monitor the speech or text contents of your communications, and infer an attitude from that.
On the other side of the coin, we can take the slightly crass view that if a customer can pay someone they can pay us - so if the credit bureau data shows them paying other debt obligations, we can define them as being able to pay, whereas if they are defaulting on all their debts we can feel confident that they’re tapped out. Again, it is possible to be more sophisticated in this, not least of all by considering the size and nature of the debts being paid. If you are a small loan provider, and your customer in collections has made an external payment but it is for their mortgage, then perhaps that is less meaningful than if they’re also paying-off other unsecured small loans.
