“Consumer confidence hit a 17-year high in late 2017 and holiday sales jumped nearly 5% vs. 2016, the largest year-over-year increase since 2011,” Experian stated in its 2017 State of Credit survey, that included the retail industry. The eighth annual survey provides insights about retail credit card use among U.S. consumers.
Taking a closer look at individual spending habits, however, Experian’s report illustrates that the average American consumer has accumulated considerable card debt at retail stores.
The typical consumer holds 2.5 retail credit cards with a collective balance of $1,841 and $1,816 in retail credit card debt. Generationally, average consumers in the Silent Generation possess 2.3 cards, Baby Boomers hold 2.7, Gen X holds 2.6, Gen Y holds 2, and Gen Z holds 1.5. Average balances show the Silent Generation with $1,354, Baby Boomers with $1,931, Gen X with $2,122, Gen Y with $1,626, and Gen Z with $770.
Consumer delinquency rates on retail credit cards have reached a seven-year high (the highest since 2011) stated Equifax in an earlier report.
“Delinquencies have been rising steadily, on a seasonal basis, since 2013,” Experian stated. In addition, the number of accounts at least 60 days delinquent has grown to 4.65 percent, up from 4.08 percent in March 2017.
Due to the continued popularity of retail credit cards and rising delinquencies, retail stores are at an increased risk for experiencing late and missed consumer payments. To address delinquent consumer accounts and remain profitable, the retail industry can implement various debt collection tactics. Among the most successful are businesses with a consumer-centric approach and the solid collection foundation described below.
A Consumer-Centric Approach
The retail industry has evolved drastically from its early stages in history to the dawn of modern day department stores during the 1890s, and finally, to the digital shopping experience of today. While much has changed, maintaining positive consumer relationships is as essential to the CEO of a 2018 nationwide retail chain as it was to the entrepreneur selling handmade footwear on the streets of ancient Rome.
Modern retail industry stakeholders understand the importance of such relationships to fuel growth and protect a business’ brand image. When conducting accounts receivable management, this approach is crucial. Whether retail stores use in-house collections, outsource the process to a third-party debt collection agency, or a combination of the two, a consumer-centric approach has proven most beneficial.
Businesses that successfully manage internal collections possess a solid collections plan, effective strategies led by expert management, experienced collectors, leading technologies that accurately monitor performance, and a physical space dedicated to collecting debt. They should also be compliant with all laws governing debt collection. The DIY approach may be desirable and attainable for some, but internal operations often comes at a high price — time, energy, emotional energy, money and human resources.
Businesses contracting an agency can select which service best suits their needs: letter writing (strategy one) or third-party phone calls (strategy two) to recover debt owed to clients. With a first-party collections strategy, consumers receive letters and phone calls from the agency on behalf of the retail store. When performing third-party collections efforts, collectors clearly identify themselves as debt collectors. Whichever methods retailers choose, employing a best-in-class agency saves time, money and resources that can be redirected to other crucial tasks.
Consumer Satisfaction Surveys
Retailers that choose to sign with a debt collection agency would be well served by one that incorporates consumer satisfactions surveys in its approach. This useful debt collections recovery tool is designed to improve service levels and brand protection by sending consumers a list of questions focused on agency and collector performance. Consumer satisfaction surveys should be presented when consumers make payments or respond to messages, and during phone calls initiated by the agency.
Data collected from surveys helps agencies protect the retailer’s brand image, improves consumer satisfaction and increases collections results by providing insight on the consumer experience, industry trends, and which tactics are most and least effective.
Debt Collection Experience
Experience is essential for debt collection success. While some retail stores may possess leaders with the necessary knowledge and skills to effectively manage delinquent consumer accounts, most operate without this expertise. Top debt collection agencies are run by a team of industry experts who have a thorough understanding of the federal and state laws debt collection laws; the latest collection technologies; current industry trends, concerns and solutions; and the agency’s mission, vision and values.
Top agencies also employ strategic predictive analytics. This approach evolved from the expert method — relying heavily on management experience and judgment — and traditional predictive analytics — combining statistical analysis, predictive modeling, data mining, text analysis, optimization, real-time scoring and machine learning. Strategic predictive analytics uses cost-benefit analysis, simulations to determine break-even points collection models and risk scores. Experts compare several segmentation options to identify when collection strategies are no longer profitable for individual accounts. This strategy allows agencies to focus on the correct debtors at the right time for the greatest return on investment (ROI).
Agencies also possess experienced collectors. Leaders who properly train collectors on policies, laws, technologies and best approaches build an effective collection team that provides quality service to clients.
Compliance and Certification
Collections must be performed legally to protect retailers from negative publicity, complaints, litigation and decreased in customers and profits. Remaining compliant helps safeguard brands from such incidents and upholds a positive brand image. Significant resources are required to remain up to date on the latest laws and regulations. Some important federal laws include Gramm Leach Bliley Act (GLBA), Health Insurance Portability and Accountability Act (HIPAA), Fair Debt Collection Practices Act (FDCPA).
Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA), Servicemembers Civil Relief Act (SCRA), and the Red Flags Rule.
In addition to laws that oversee debt collection, various certifications help to ensure that agencies are performing legal and effective collections. SOC I Type II audited financial reports certify that agencies adhere to rigorous data security standards. SOC 2 Type II reports focus on the effectiveness of non-financial reporting controls related to confidentiality, security, processing integrity, availability, and privacy of a system. The PCI DSS 3.2 certification focuses on payment card industry standards. Lastly, Professional Practices Management System (PPMS) certification by ACA International runs a thorough auditing process with rigorous standards. Less than 2 percent of U.S. debt collection agencies hold this distinction.
Technology and Security
Retail industry experts performing in-house debt collection with the ability to cover the costs of state-of-the-art technologies dedicate time to learning the systems and remain up to date on new technologies will experience higher ROI rates than businesses with less advanced in-house collection efforts. Collections software used by top debt collection agencies include, but is not limited to, contact management platforms, automated dialer programs and skip tracing software.
These technologies also support data security efforts. In addition, agencies follow various security protocols to protect consumer data as well as strict badge-only building access and a clean desk policy. Businesses without safety protocol training and the means to purchase and use leading technologies can entrust a top debt collection agency with the task.
Solutions for the Retail Industry
Effective debt collection management requires industry expertise; a solid understanding and strict adherence to all debt collection laws and regulations; leading technologies; data security protocols; brand protection measures; and a consumer-centric approach with tactics such as consumer surveys. Retailers using a combination of both in-house and third-party collections as well as those wishing to outsource all delinquent accounts can choose an agency dedicated to each of these factors.
Optio Solutions is a best-in-class debt collection agency that is licensed and bonded where necessary in all 50 states. Our agency is committed to compliance, data security, consumer satisfaction, and safeguarding clients from a negative brand image with the latest collections software, a team of industry experts, experienced debt collectors, and consumer satisfaction surveys. Our surveys provide insight into the consumer experience, allowing for continued consumer satisfaction by implementing changes where needed. With this approach, Optio helps clients maintain increased consumer retention rates throughout the debt collection process since loyal customers are essential to success in the highly competitive brick-and-mortar retail space.
Retail industry professionals that are considering hiring or adding an agency are invited to contact Optio today for a free consultation.
