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Could automating debt conversations help businesses bolster their bottom lines?

By , co-founder and co-CEO of CLEVVA
12 Jan 2024
Ryan Falkenberg, co-CEO, CLEVVA.
Ryan Falkenberg, co-CEO, CLEVVA.

There is no escaping the fact that South Africa has a severe and deep-seated debt problem. The average household spent nearly 62% of its income on servicing debt in 2022. While that’s slightly down from the 66.1% they spent in 2021, there are other indicators that consumer debt troubles are getting worse.

In mid-August Absa revealed that the number of bad debts in its home loan portfolio tripled year-on-year. There are a number of macro-economic factors behind this surge, including rising interest rates and rampant inflation. With even middle-income South Africans spending 80% of their salary within the first five days of payday, it’s easy to see how those rising costs can quickly result in debts becoming overwhelming.

And customers overwhelmed by debt are more likely to miss payments. Many already are. Of the estimated 23 million credit-active consumers in South Africa, approximately 11 million have some form of adverse information on their credit profile or credit report. That has significant implications for the organisations that have lent them money, be that through a structured loan, a credit card, or even an in-store account.

Business risks

While businesses will (or at least should) bank on some defaults, the risks are significantly greater when a lot of customers start to fall behind on payments. But there is a very real risk that businesses will lose long-term, loyal customers if they take the wrong approach. The trick, therefore, is to encourage payment in a way that doesn’t alienate indebted customers and ensures that they return once they’re on a good financial footing again.

Being in debt to the extent that you’re unable to make payments is incredibly stressful. Research released earlier this year found that 78% of South Africans experience financial stress. That means that attempts to make collections can easily become volatile, with customers reminded of how much pressure they’re under to make payments and customer service representatives bearing the brunt of their frustration.

Those frustrations aren’t restricted to interactions where the company is chasing down payment either. Even customers getting in touch to make a payment plan will rapidly get frustrated if they can’t find a quick resolution to their problem. How can companies ensure that they keep their cash flow stable while also keeping customers onside?

Good communication

Here, all of the tenets of good customer communication come into play. That means meeting customers where they are. And engaging them with the right message on the right channel at the right time. For instance, would you respond better to an empathetically written text message that you can read at your own convenience or a series of phone calls while you’re busy at work?

Organisations can go a step further to meet customers where they are. With a combination of automation and emergent technologies like virtual agents, they can interact with customers in personalised and solution-oriented ways, as and when customers are ready to engage. The organisation may be able to help affected customers restructure their debt so that it’s more in line with their ability to pay it back. It may even be able to help customers find accredited third-party debt relief, further improving the experience. Critically, this can all be done in ways that are less emotionally fraught than if the customer had to engage with a human representative.

This customer-centric approach, backed by automation in technology can result in better collection rates at a lower cost. More importantly, it can do so without alienating customers. 

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