Debt and the customer relationshipManaging the customer lifecycle –from customer acquisition torevenue recovery By Martin Kochman Chief Strategy Officer Transcom
A joined up approachFew countries have escaped the ravages of the recentrecession and, though green shoots are evident in someareas, it’s clear that recovery will be both tentative andfragile. The number of individuals and businesses that havefallen into catastrophic debt (the point at which indebtednessexceeds ability to pay) continues to escalate. The sadtruth is, many of those who are suffering most are ‘good’customers; customers you’ve fought hard to win and,until these unprecedented times, have delivered valueto your business.This presents your organization with a challenge:How to make sure its revenue stream is protected,but without compromising long term customer loyaltyand relationships.It’s an issue that impacts both the way you managecustomers and the way you manage debt. In mostorganizations ‘customer relationships’ and ‘customerdebt’ are managed very separately, within the clearlydefined and rarely aligned management silos of thefinance, customer service and sales departments.It’s time for a change.This paper advocates the adoption of a joined up approach:an approach that manages customer relationships andcustomer debt in tandem, with close alignment betweenthe teams that manage both functions. It outlines someof the challenges involved in achieving this approach, This paper advocates theand how they can be overcome. adoption of a joined up approach: an approach that manages customer relationships and customer debt in tandem.
Good customers and reluctant debtorsDebt is something most customer management The ‘reluctant debtor’ – two definitionsdepartments rarely think about. After all, they are targeted • Careful spenders on tight budgets whose abilityon their ability to win customers, retain them and maximize to live within their means is challenged either bytheir spend. When things turn sour, responsibility passes unprecedented rises in the cost of living or byto the credit department. sudden and dramatic loss of income through job loss, pay cuts or reduced working hours.But there’s a problem. The credit department is motivatedvery differently, on its ability to recoup revenue and secure • Sophisticated spenders who manage creditpayment fast. And, because we’re living in tough economic (mortgages, credit cards and loans) responsibly.times, the pressure to keep cash flows stable is more They meet their payments and move debt aroundintense than ever. The temptation to play hard ball – to to secure the best lending deals. But, with their assetworry about the debt first and the customer relationship values weakened and sources of consumer creditlater – can be almost overwhelming. drying up, they’ve lost the room for manoeuvre.All of this would be fine if we could be certain that all At a time when the economic environment is making itdebtors were ‘bad’ customers – profligate individuals or tougher than ever to recruit new customers, you need toorganizations that, because of their behavior, can be of fight hard to keep the ones you have, even if that meansno possible value to our organizations. helping them recover from debt.If only things were that simple. Increasingly, smart companies are learning to manage customer relationships and customer debt in tandem,The sad truth is that, as long as our economies remain creating closer links between credit control and customerprecarious, more and more ‘good’ customers will, through service teams.no fault of their own, fall into catastrophic debt and defaulton their payments. They’ll be customers you’ve fought The organizational challengehard to win and who have rewarded you with loyalty. The organizational challenge mustn’t be overestimated, butFar from being profligates, they’re ‘reluctant debtors’, it can be overcome. Here are three steps you need to take:forced by circumstances they can’t control into situationsthey can’t easily remedy. You probably don’t want to let Step 1: Clarify the customer lifecyclethem too lightly. Every customer relationship begins with a sale and ends with a payment. It makes sense, therefore, to think of sales and revenue recovery – plus the support and service activities that occur in between – as three stages within a single customer lifecycle. That doesn’t necessarily mean that customer management and credit management departments need to merge. It simply means that their activities need to be aligned around a common set of objectives. 2
However, traditionally credit and customer management If, working together, they can identify the early indicatorsobjectives have not been aligned. that signal that a customer is likely to experience financial difficulty, and adjust their management strategies accordingly, then the likelihood of debt can be reduced. Similarly, if they can identify the ‘reluctant debtors’ in the Maximize credit management department’s portfolio and develop Protect debt recovery cash flow ways of rehabilitating them, then customer retention can be maximized. Step 2: Prioritize service skills in credit management departments Traditional credit management objectives Disciplines and skills vital to good customer management can be applied within credit management environments to help rehabilitate ‘reluctant debtors’. Customer management departments, typically, have fine tuned their ability to influence customer behaviour with diplomacy and personal empathy. The same skills are required when managing Maximize Grow ‘reluctant debtors’, whose ‘ability’ rather than ‘willingness’ Secure customer customer loyalty to pay is in question. Investigating their circumstances acquisition spend with sensitivity, offering constructive advice and presenting flexible payment plans can present a way forward that delivers results for both parties. Traditional customer management objectives For example, if a reluctant debtor simply can’t afford the minimum monthly payment on their credit card, it probably makes sense to accept a lower payment, providing theyIn and of themselves these traditional customer management agree to cease all spending on the card until the total debtand credit management objectives are fine and appropriate. has been reduced to an agreed level. This at least keepsThe problem comes when they are in conflict. For example, some funds coming in and the two parties still talking.there is little value to the organization if, in the rush to After all, what’s the alternative? If an impasse is reachedacquire new customers, customer management teams and no payment made, the debt will escalate.take on customers that represent a bad debt risk. Similarly,the business is damaged if, in their determination to recover Once debt is more than 90 days old most organizationssums owed by ‘reluctant debtors’, credit management pass responsibility for it from their credit control departmentdepartments alienate customers who could have been to their debt recovery operation. This usually marks arehabilitated and could continue to add value to the profound change in mindset. Assuming that the customerbusiness as their economic circumstances improve. relationship is all but lost, the focus shifts to only recovering as much of the debt as possible – an expensive damageIn general terms, both customer and credit management limitation exercise with a narrow focus.teams embrace a common objective – to acquire, buildand maintain a loyal customer base that represents aminimal credit risk. 3
The imperative must be to ensure that ‘reluctant debtors’ Most obviously, companies can choose to scrutinizedon’t fall into the post 90 day debt recovery trap. The trick high risk accounts more carefully and take pre-emptiveto achieving this is to take an approach that favors action when the first signs of difficulty arise. Again, anconciliation and arbitration, and is delivered by an operation analysis of customer data will help identify those signals,that’s targeted on retention and rehabilitation as well as so that business rules can be built to govern appropriatedebt recovery. responses.Step 3: Apply analytics to predict ‘likelihood to For example, on behalf of an internet service providerdefault’ in customer management departments for whom we work, we use risk scores to determine ourCustomer management departments are adept at using response when a client exceeds their credit limit or theiranalytics to predict customer behaviour of all kinds – typical daily usage increases uncharacteristically. A lowincluding their propensity to buy a particular product or to risk customer is sent a gentle customer care messagerespond to a particular campaign. They are unlikely to be as a first measure and the escalation process that followsaware that the same processes can be used to predict is both measured and ‘soft touch’. A high risk customercustomers’ likelihood to default. will receive an immediate phone call, followed by a much more assertive process.It’s a process that needs to begin the minute the customercomes onboard. An analysis of an organization’s This stratified approach, which matches organizationalhistorical customer data will reveal the commonly shared response to customer risk, helps ensure that ‘reluctantcharacteristics of those customers that have defaulted on debtors’ those who wouldn’t typically fall into a high riskpayment. This, coupled with established geo-demographic category, are dealt with sensitively but proactively, withprofiling standards, are the foundation upon which an ability offers of help at an early stage.to predict and forecast an individual’s likelihood to defaultor encounter financial difficulty can be built. An appropriate Irrefutable factsrisk score can then be applied that will govern the way that Speculation about the future state of our economies –customer is managed, the payment terms agreed with how long recovery will take and how sustainable it will be –them, the extent to which credit will be extended and the is unreliable. But, amidst the uncertainty lie a few irrefutableapproach that will be taken when late payments occur. facts. First, when winning new customers is tough, you can’t afford to lose those you have, even if that means youFor example, a credit card company might take a cautious must help them through tough times. Second, you’ll onlyapproach when extending credit to a customer with a high be able to do that if you intervene early with a ‘let’s fix this’risk score. By the same token, a mobile phone operator approach. Third, by creating joined up thinking betweenmight choose not to proactively market a contract option customer and credit management operations, you’ll do thisto a high risk customer, but opt instead for a less risky more effectively and at lower cost.‘pay as you go’ deal. 4
About TranscomTranscom is a global outsourced service provider entirelyfocused on customers, the service they experienceand the revenue they generate. Our customer andcredit management services are designed to strengthenour clients’ customer relationships and secure theirrevenue streams.Our broad service portfolio supports every stage of thecustomer lifecycle, from acquisition, through service,retention, cross and upsell, then on through early andcontingent collections to legal recovery. Expert at managingboth customers and debt, we make a positive contributionto our clients’ profitability by helping them win customers,grow business and secure their payments.And, while our services are designed to maximize revenue,our delivery operations are built to drive efficiency. Throughour global network we can provide service in any countrywhere our clients have customers, accessing the mostappropriate skills and deploying the best communicationchannels in the most cost-effective locations.Every day we handle over 600,000 customer contactsin 33 languages for more than 350 clients, includingbrand leaders in some of today’s most challenging andcompetitive industry sectors. The experience we gain isused to constantly refine our service portfolio, processesand delivery, allowing us to respond quickly to changingmarket conditions and client requirements. 5
Find out how working with Transcomcould transform your customer andcredit management firstname.lastname@example.org