Why Does an Empathic Approach to Collections Yield Better Results?

Economic uncertainty in the United States has created numerous challenges for both businesses and consumers. There is a major cash shortage as businesses find it difficult to extend credit and collect payments while consumers are living paycheck to paycheck.

One day, a person might be doing exceptionally well with a well-paying job, only to find themselves laid off and burdened with debt they can't afford to pay off. 

This uncertain pattern of living life, when combined with an aggressive collection strategy from businesses, puts consumers into a fight or flight mode. It makes it very difficult to recover debts, increasing the chances of delinquency. 

Instead, one should take an empathetic approach to boost the likelihood of a positive outcome during collections. At FinanceOps, we discovered that when our AI-powered collection agent Alice talked calmly and showed empathy to debtors, we saw a significant improvement in collections.

In this blog, we will understand the role of empathy in collections and why your business should switch to this approach as soon as possible.

Adding a Humane Touch to Collections

In the grand scheme of things, it's easy to lose touch with one's roots, and that's where the problem starts. Consider the case of Max, a collection agent, who contacts a consumer about a pending invoice worth $700. Instead of trying to understand the reason for this payment delay, he starts badgering the person.

Max does not care if this person has lost their job, is unwell, or has recently lost someone close to them. He just wants to collect the due amount and shows no empathy. As a result, the already frustrated consumer starts to ignore him, and Max, now unable to do anything, has to write off the uncollected amount as bad debt.

On the other hand, we have Sam, a calm and composed collection agent who is empathetic towards the debtors. Sam tries to understand the debtors' situation and provides them with flexibility to make payments, either through payment plans or discounts. The consumer feels heard and understood, which motivates him to settle his debts, even if it requires some time.

This is why it is important for collectors to be empathetic during collections and always remember that they are talking to another human being, who they know very little about.

How Does Empathy Affect Collections?

PwC reports that 73% of consumers are loyal to brands that demonstrate empathy during debt collection. It demonstrates why such a collection approach is necessary from a business perspective, as well as how far ahead this puts you from competition. When a collection team begins to exhibit empathy towards debtors, they start to see several benefits. Let’s take a look at them.

• Improves communication and trust: Showing empathy during collections builds rapport with customers. When collectors understand and acknowledge a customer’s financial struggles, it creates an open, trusting communication channel. Customers are more likely to engage and provide honest insights into their payment challenges, which leads to more effective resolutions.
• Reduces conflict and aggression: Empathy helps diffuse tense situations. By actively listening and responding with understanding, collection agents can avoid confrontational dynamics. This softer approach can ease frustrations and prevent customers from becoming defensive or uncooperative, reducing conflict and improving outcomes.
• Faster payment resolutions: When customers feel heard and understood, they are more willing to work toward a solution. Empathy-driven conversations can result in more manageable payment plans or creative solutions that align with the customer’s current financial reality, leading to quicker settlements.
• Enhances company reputation: Companies that incorporate empathetic practices in their debt collection process are seen as more customer-centric and ethical. This positive reputation can increase brand loyalty and even attract new customers, as people prefer to do business with companies that prioritize human values.
• Creates opportunities for long-term solutions: Empathetic collectors often uncover deeper financial issues the customer may be facing. By understanding these root causes, companies can offer long-term solutions, such as flexible repayment terms, improving the chances of full debt recovery.
• Aligns with regulatory and ethical guidelines: Many regulations in collections emphasize fair treatment of consumers. Showing care ensures that companies align with legal and ethical guidelines while also improving the effectiveness of collections efforts.

Debt Collection with Alice—A complete Game Changer

With the introduction of Alice, FinanceOps' AI-powered collection agent, our approach to debt collection has evolved into something far more effective and customer-friendly. 

Alice uses advanced data analytics to craft personalized strategies for each customer, taking into account their unique payment history, communication preferences, and financial situation. This data-driven approach has yielded impressive results: our engagement score has risen by 40%, signaling a significant improvement in customer interaction and response rates. More importantly, our collection rate has increased by 30%. 

By combining AI's analytical power with an empathetic tone, Alice can engage with customers in a way that encourages open communication and increases response rates by 50–60%. Customers are now more willing to share their financial difficulties, and together, we are finding workable solutions such as flexible payment plans and discounts that keep relationships intact. 

Alice's ability to blend AI precision with empathy has not only sped up the collection process but also maintained positive customer experiences throughout. If you want to take your collections to the next level, Alice is your best bet. Book a demo today to learn more!