Is Debt Collection Okay During Covid?

Is Debt Collection Okay During Covid?

Learn how to avoid a cash flow crisis for your business

The current pandemic has unquestionably made debt collection more complicated. Businesses and individuals around the world are struggling financially and bad debt is rising.

For businesses with outstanding accounts, this makes for a difficult situation. Given the whole range of legal, moral, and survival issues at play, business owners are understandably cautious about their debt collection processes at this time.

On one hand, they are all too aware of how the pandemic has been affecting those around them, but on the other, know that the popular pandemic rally cry that ‘we are all in this together’ rings true. If businesses ignore, wipe, or indefinitely delay payments owed to them, they then inherit their debtor’s problems and end up in the same situation.

In order to avoid cash flow problems, business owners need to strike a balance between being as reasonable and respectful to people’s changing situations as possible, and developing a responsible debt recovery process that ensures the financial security of their own businesses.

Moral & legal issues

While some business owners may feel a little uncomfortable chasing debts at this time, the sad reality is that it is rarely a ‘comfortable time’. As bad as the pandemic may be, non-payment of debts are frequently associated with sensitive personal issues such as relationship breakdowns, job losses, and personal health issues.

Most businesses, however, simply can’t afford to indefinitely postpone or write off these payments no matter how much they empathize with the individuals involved. Making a request for payment is certainly not unreasonable, but being flexible is the key. Most debtors will want to do the right thing, and with a mutually agreed upon plan in place, both parties can achieve a satisfactory result.

Another cause for concern for businesses looking to recover money owed to them during the pandemic centres around legal issues, with some jurisdictions introducing temporary measures to assist people facing hardship. These have typically been minor adjustments around the thresholds for bankruptcy and insolvency and, in most cases, shouldn’t interfere with you collecting outstanding payments. Businesses should, of course, check the relevant legislation in their areas.

In-house or outsourced collections?

The most important question that business owners and managers should be asking right now is not ‘if they should be collecting payment’ but ‘how they should be collecting payments’.

Traditionally, there have been two main options. The first is to collect payments in-house by either hiring dedicated collections staff or by using existing staff in a repurposed role. The other option is to outsource bad debt to a debt collection agency.

Both options have their own pros and cons. By collecting in-house, businesses get to keep 100% of the payments and maintain full control of their staff and public image, however there are a few drawbacks. Using existing staff takes them away from their regular roles and they typically have no experience in debt collection techniques. Alternatively, the costs associated with hiring a dedicated debt collector often outweigh the amount that you can recover.

Debt collection companies utilise highly trained debt collectors and negate the need for putting on expensive full-time staff, but you don’t get to keep the full amount recovered as they will keep a hefty percentage from each payment. Additionally, you have no control over the process or the tone of the exchanges.

Cloud-based collections

For many businesses, however, a better option these days is to combine the best elements of the traditional methods by building teams of offshore debt collectors through reputable outsourcing providers such as Cloudstaff.

Setting up cloud-based teams allows businesses to access professional debt collectors at a low cost, while keeping 100% of all payments, and maintaining full control of the process and messaging. This is particularly important during the current pandemic when sensitivity is needed.

In countries such as the Philippines where Cloudstaff operates from, the standard wage differences mean that Western businesses can, on average, save around 60-70% of the salary and overheads of an equivalently experienced debt collector domestically.

With collections in the Philippines now being a mature industry, it’s not difficult for Cloudstaff’s recruiters to be able to find experienced staff who are well versed in collections laws and the latest tools, software, and processes.

Find out more

For businesses looking to explore setting up cloud-based collections teams, Cloudstaff has dozens of experienced debt collection professionals ready for interview and deployment. Contact us today and we would be glad to take you step by step through how it works and provide you with a quote tailored to your needs.

Find out more about leveraging outsourcing to help your debt recovery and collections team.