Once reputation is ruined…
Most debt collection agencies have a very bad reputation, which increasingly negatively impacts the image of their creditors. In this article, we will show why many debt collection agencies have a bad reputation and what lenders can do to protect their image.
The birth of collection agencies
To get to the heart of the issue of the “debt collection agency,” we first examine its origins. Many debt collection agencies were created in the last century, at a time when legal debt collection in Switzerland was an expensive business based on specialized knowledge. For many creditors, legal debt collection was either impossible or just very complicated and tedious to carry out independently, which is why they chose to entrust the legal debt collection to a debt collection agency. The work of debt collection agencies was costly, but creditors also had to bear the opportunity costs that would have been incurred if they wanted to handle the legal collection themselves.
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Costs through debt collection agencies
Many lenders are unaware of the actual costs associated with hiring a debt collection agency. First, it is important to understand that, under Swiss law, the costs related to hiring an external debt collection service provider cannot be transferred to the debtor. In other words, all expenses incurred by the debt collection agency are paid by the lender claiming the direct expenses or by the debt collection agency by reducing its revenues.
The creditor can also demand from the debtor all the compensation that the collection agency requires from the debtor, if they are legally eligible, or, conversely, the collection agency cannot demand it if they are not legally eligible. This means that the debt collection agency always lives at the expense of the lender, since the debtor does not have to pay the fees of a debt collection agency from a legal standpoint. Given that debtors are increasingly informed about the costs they have to incur and those they do not, they defend themselves against excessive claims from debt collection agencies (e.g., damages caused by delays). This involves unnecessary additional efforts and costs, which means that the debtor does not have to pay the additional expenses, but the creditor has incurred unnecessary additional expenses in trying to recover the debt to collect additional expenses from the debtor out of their own pocket.
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Digitization in the 21st century
During digitization, the added value of the activities of debt collection agencies is becoming less and less significant, and thanks to increasingly better support tools, the opportunity costs on the creditors’ side are becoming less and less. Today, any lender without specialized knowledge can carry out their own professional legal debt collection using our online debt collection solution “Robo-Inkasso.” For a creditor, engaging a debt collection agency is no longer a decisive advantage. The activity of a debt collection agency therefore does not justify any cost for a creditor in today’s world. If a creditor only considers the reputational risk associated with engaging a debt collection agency, it is no longer an alternative. As a result, debt collection agencies are also increasingly inclined to offer their services at a lower price, sometimes even seemingly free. As explained above, gratification can only work in this context to the extent that the creditor does not incur direct expenses and that the debt collection agency instead uses parts of the payments from the debtor that would actually be due to the creditor.
Robo-Collection as a solution
The modern solution is called Robo Debt Recovery and allows every creditor to manage their own legal debt collection with little effort. The creditor can decide on a case-by-case basis whether to follow the advice of Robo Recasso or make another arrangement with the debtor depending on the situation. A lender can easily calculate the costs of using Robo Encaisse. They do not pay fixed expenses; they only owe a one-time flat fee for 20 years of use. The flat fee per case includes everything from the debt collection request to the management of asset deficit certificates, including active follow-up service and support, the use of interfaces, import/export functions, reports, etc.
Credit collection agency against the creditor
As already mentioned, the attempt of a debt collection agency to demand from the debtor, in addition to the credit, even unjustified fees, poses risks for the creditor. These are legal risks, litigation risks, reputational risks, etc. This transforms a good starting position for the lender into a bad starting position. And that’s not all. To make matters worse, a debt collection agency always has worse cards against the debtor than against the creditor. On one hand, debtors are very reluctant to make payments to debt collection agencies because they see them as parasitic and, unlike the creditor, do not feel obliged to do anything. Regarding the creditor, debtors generally see themselves at least obliged to pay because they have received a payment from the creditor and are indebted to the creditor’s payment. On the other hand, a debt collection agency always acts from the second row towards the debtor, meaning it always has secondary information, does not have a supply relationship with the debtor, and at best only has very up-to-date information that the creditor has. The classics are well known to everyone and can be read in the press: debt collection requests are made for an amount of 0.05 cents, the necessary enforcement requests for the collection of debts for already credited credits, etc.
The trend
The result is a uniform trend. Debt collection agencies are very unpopular, and this is increasingly due to obvious misconduct. They are faced with an ever-increasing number of cases in an increasingly short time to be able to work for an increasing number of creditors at ever-lower costs. A classic downward spiral, which increasingly translates into the image of debt collection agencies first, and then into the image of the creditors who make them suffer as service providers of debt collection seeking to survive in a heavily eroded market and increasingly resorting to unjustified means.
We anticipated this trend and created Robo-Recessed to offer creditors a suitable solution with more opportunities than risks. The overwhelming response from clients confirms the great need for such a solution. We are pleased to offer creditors the best debt collection experience ever achieved with Robo Debtcollection.
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Or read
A comparison of different debt collection methods: https://tilbago.ch/it/offerta/
Guidelines for evaluating a debt collection solution: https://tilbago.ch/it/valutazione-di-una-soluzione-di-incasso/
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