The article appeared in the January issue of Collections & Credit Risk.

Bleak. Scared. Bitter. Angry. With that, you have John Q. Public's sentiments about the U.S economy and the outlook for 2009.

Consumers are on edge. Each day the news is worse. Mass layoffs and warnings of more to come, a volatile stock market and,  don't forget, ongoing talk of corporate bailouts.

Before the depth of the credit crisis became clear, getting back on track seemed like an insurmountable challenge for many individuals. For those new to financial strain, the pressure is daunting.

For creditors and collectors, the fear is that a shift in attitudes about debt will lead many individuals, some feeling they have no choice, to ignore their bills and gamble instead with their credit scores.

With the federal government doling out financial aid to troubled creditors and, indeed, entire industries, consumers may not feel as committed to settling – or even paying down – their debts, says Brian Reiss, managing director – U.S. Practice at Bridgeforce Inc., a Newark, Del.-based consumer lending and risk management consultancy.

"People feel like the government will bail them out," he says.  "What our clients are trying to do is help people who need help but frankly [consumers] are struggling in terms of what exactly they can give because so much is changing so rapidly."

It might be counterintuitive but the best times for a collection agency generally occur when the economy is booming. In a down economy, a longer account list hardly means a profit windfall because, in part, agencies typically do not receive fees until they collect their clients' money.

Getting people to pay their debts is more difficult, confirms Howard Seares, managing general partner at Twenty-First Century Associates, an accounts receivable management company based in Hackensack, N.J.

That means traditional collection techniques that might be more aggressive are likely less effective than a softer, sales-based, approach. To boost recoveries, agencies must look at the psychological aspects linked with debt and consider whether to adopt an approach that emphasizes a partnership with consumers.

Reiss believes that the most successful collectors are those who focus on assessing the consumer's financial condition before concentrating on the request for payment.

"It's important to get payment but you also need to know about the situation to make sure that there's not something larger looming," he says. "Once you do that sort of triage, if you don't help those people who need it, you're probably not going to get to them again."

At the end of that initial call, he adds, the collector should have a good idea whether the consumer is going to pay.

Mostly, it is important that debt collectors try to make the process as positive as possible, regardless of the circumstances. There always will be accounts that go unsettled but at some point the economy will recover. Maintaining goodwill is a must for relationships to stay strong between collectors, clients and consumers.

Debt collectors have little choice but to hope their diligence pays off. What they cannot predict is, once the economy rebounds, how quickly will consumers recover and will they still care about settling?

Says Gordon Blagbrough, managing director of collection operations at Plaza Associates, an accounts receivable management company based in New York, "Believe it or not, part of our job is to inject something positive into someone's life and they are basically feeling a lot of negativity. We can turn it around to understand what their circumstances are and what their prospects are."

While the subprime mortgage industry's problems are perhaps more complex, crippled by freewheeling credit decisions and rampant investor speculation, apathy about their obligations struck many homeowners earlier this year.

"Jingle mail," a term coined for when homeowners abandon their mortgages and return the keys to lenders rather than try to keep up with rising payments on deteriorating assets, proved to be a disturbing twist for mortgage lenders.

Of course, if they in any way can do so, the majority of consumers do their best to pay their bills despite what is happening in the economy. It might mean agreeing to payment plans or just paying the minimum each month to keep their credit scores in shape.

With more consumers counting on credit for daily living expenses, it is not as necessary for collectors to underline the importance of maintaining a good credit score. "[Consumers] realize how important a good credit score is now because that's the one thing that they may still have left if their assets have disappeared," Blagbrough says.

The challenge, therefore, is to find a solution that makes both parties comfortable. "Our approach has been to work with people with what they have and to have a better understanding of what they might be able to do," he says. "Our industry is becoming aware of how a successful collection call has to be more sales-oriented. We're playing more of an advisory role."

Patrick Nixon, sales and marketing at CMRE Financial Services Inc., a Brea, Calif.-based collection agency focused on health care loans, notes that the economic downturn is driving a need for more payment plans in the health care sector.

"You can also go back and work with your clients to see if they will become more aggressive on their settlement campaign," he says. "Where a client may have previously offered a 30% settlement campaign, perhaps the client might be willing to cut deeper into that discount."

Instead of a 30% discount for prompt payment, for example, the client may provide a 40% settlement and encourage debtors to take care of their bills.

Sandy Lawrence, CMRE's president, says the company's collectors are taught to research as many avenues as possible to help patients settle their debts, such as whether insurance companies can be involved, if the debtor is eligible for charitable compensation, if they are a victim of a crime or if the expense is related to a workers' compensation claim.

Collectors at Plaza Associates are rewarded not just on the money they collect but the quality of their calls, Blagbrough says. "We like to make sure that our presentation is about what we can do to help the consumer come up with a payment, or a possible settlement, under certain circumstances, that would help resolve their situation," he says, adding that the firm offers various incentives to encourage consumers to pay their bills.

Quality control is especially important, Blagbrough adds, because in stressful times, discussions between collectors and clients can get heated and avoiding complaints is a high priority for his company. "We spend a lot of time coaching our collectors."

Blagbrough believes that while consumers are under more financial stress, long-standing antagonism often shown toward collectors is easing.

"We all understand what's going on out there: everyone is financially impacted," he says. "When collectors and consumers are talking, there is a common ground that's understood."  CCR

Carolyn Heinze contributed to this story.

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