The mere mention of “inflation” incites fear in both the general public and the business elite. Inflation drives up the cost of living, forcing people to take out larger loans to fulfill their monthly expenses. And people find themselves trapped in a cycle of borrowing money to pay for overhead costs. Amidst such situations, a third party debt collection agency is hired by businesses to recover the money from the ones who miss their timely payments.
So what does this stand for the debt collectors?
First of all, when borrowers prefer to take out new loans rather than repay their current debt, it makes their jobs harder. Therefore, it is challenging for debt collectors to persuade people to behave differently.
Read on to find out more about how inflation affects the debt collection business and what lenders can do about it.
Inflation Pushes Debtors to Take More Debt
Inflation just reached a 40-year high of 7.9%. After that, the interest rate went up by 0.25%, and six more rises are expected by the end of 2023. This report is a result of the Federal Reserve’s efforts to reduce inflation, which has increased the price of everything from groceries to fuel.
Due to the continued rise in inflation and the predicted rises in interest rates, it is difficult for debtors to make payments on their debt when they are already struggling just to stay afloat.
In fact, 48% of consumers have increased their debt during the epidemic to deal with inflation-related price increases. This implies that borrowers would be encouraged to take out new loans or credit cards rather than repay their existing debt.
Inflation Reduces Purchasing Power
When inflation is high, the value of your money decreases. This can lead to difficulties for those who owe money, as their purchasing power is reduced. Every day consumers and manufacturers alike are feeling the pinch, struggling to manage their finances on a personal and professional level. Even if they are earning more, the increased cost of living means that they may still struggle to make ends meet. For those who are already in debt and trying to keep their business afloat, the situation can be dire. In this case, they may prioritize finding ways to make more money to recover their business rather than paying off their debts.
Inflation Eats Away at the Value of Your Debt
As the rate of inflation increases, the value of the debt owed to debt collectors tends to decrease. Since the value of the money has reduced over the course of a year, its “purchasing power” will also decrease. Theoretically, this is true, but inflation also raises interest rates. In order to counterbalance the additional risk of lending money, lenders are more likely to increase their rates in an economy where prices and wages are increasing. Therefore, to account for inflation, borrowers must finally make a sizable payment. Therefore, collecting the debt would be much more difficult. Third-party debt collection agencies are thus hired to recover past dues in a seamless way.
So What Can Creditors Do?
Maintain Contact with the Debtors
The best way to collect the money you are owed from your debtors is to be in constant contact with them. This will help you quickly collect any debts owed to them and keep your good reputation.
The debtor will feel more comfortable fulfilling their commitments if they are aware that they may get in touch with a member of the creditor’s office anytime they need assistance.
By using a third-party debt collection service, you can stay in touch with the debtors via a range of communication channels. The agents will individually communicate with the debtors and help them settle the accounts as soon as feasible. Additionally, they make use of real-time agents, automated voice answers, SMS, and direct voicemails.
Offer Discounts for Debtors Who Pay on Time
Giving early-paying debtors discounts can significantly increase your overall income. Giving them a simple discount of 5% if they pay within the next week or even incentives like gift cards could accomplish this. One of the finest ways to encourage customers to pay their debts on time and increase their loyalty to your business is through this tactic.
Conduct direct discussions with borrowers about their capacity to pay
In cases where the debtors may be facing serious financial difficulties, open communication with them might help discover solutions to support them in repaying the loan. If they’re having trouble paying the debt in full, you might also consider coming up with a payment plan to help collect the money in installments.
Get the Help of Debt Collectors
If you’re having trouble being paid, think about working with an experienced third-party debt collection agency to negotiate with debtors on your behalf. While debt collectors do their utmost to recover the money you owe, you can save time by focusing on your most important responsibilities.
Numerous businesses, healthcare, and insurance companies might benefit from the assistance of a reputable debt collection service in recovering their debt. Additionally, they only charge a commission when they successfully collect a debt. To discuss how to have your debts collected, get in touch with one straight now.