A Series of (Un)fortunate Events – Emotions and Understanding Involved in Debt Collection

The branches of the pandemic affected almost all spheres of the economy, and one of those branches reached companies engaged in debt collection. Numerous activities were forced to close overnight by decisions from the headquarters, the revenues of companies and individuals either dramatically decreased or even disappeared, debts could not be collected, and on top of all that, devastating earthquakes occurred. The government’s reaction to all this was a six-month moratorium on enforcement, and the operations of debt collection companies had to adapt overnight, just like everyone else, to the ‘new normal.’ One of the first changes was more sensitive communication with debtors.

– All relevant debt collection companies initiated processes for additional employee training and adapting collection models to the new business conditions. We implemented a series of concrete assistance measures, which included a temporary suspension of the collection of unsecured claims until a systematic long-term solution was achieved, aiming to enable the fastest possible recovery for citizens in earthquake-affected areas. Agencies, during the critical period, for example, abandoned the activation of enforcement proceedings against employers, and those that were active were put on hold. The measures we adopted at the level of the Croatian Association of Debt Collection Agencies are a continuation of the positive practices of agencies that approach each debtor individually, considering their real material possibilities so as not to further jeopardize their existence – said Matija Arapović, director of Prima Solventa and president of the Croatian Association of Debt Collection Agencies (HUAN), which represents the eight largest agencies.

Key Communication

They did not think too much when it was necessary, he mentions, to help and donate to the affected. Besides the earthquakes, the moratorium on debt collection significantly impacted the agencies, although, Arapović reveals, the decision on assistance measures was unanimously accepted among HUAN members. A series of unfortunate events required a different approach to business, and due to all of the above, they established quality cooperation with decision-makers. For this reason, HUAN also hopes that this period will be a good foundation for further regulation of agency operations, in accordance with EU regulations.

– As a member of the European Union, Croatia works daily on adapting laws and market conditions. In this context, we do not see significant differences in operations. What we strive for as an industry is more frequent use of public tenders in the domain of debt collection and purchase, as well as the faster implementation of the digitalization process of the collection system that would allow creditors to collect their claims within an acceptable timeframe in case of non-payment and communication with the debtor, which is quite common in Western countries – explains Arapović.

According to him, communication is the key to resolving all situations in debt collection. When we talk about claims against individuals, debt collection agencies communicate with debtors exclusively through the contact specified in the contract that the debtor themselves signed. In the case of legal entities, including small and medium-sized enterprises, the situation is the same.

– If a debt collection agency contacts an employer, it means that the person, the debtor, at the time of signing the contract gave consent allowing the garnishment of wages or other permanent monetary income for the amount exempt from enforcement. Entrepreneurs often mistakenly believe that agencies put them in an uncomfortable position where they must withhold part of the salary from an employee that is not already under enforcement, but this is regulated by the Enforcement Act, not the will of the agencies. It is a provision within the Enforcement Act, based on which the debtor, or the person who incurred the debt, gave consent to the public notary for the garnishment of wages or other permanent monetary income for the amount exempt from enforcement. This means that they consciously, for example, when taking a loan, at the public notary agreed that, in the event of non-payment of that debt, the creditor could seize the monetary income that is exempt from the protected part – reminds Arapović.

Dialogue with Clients

From B2 Kapital, very similar thinking can be heard. The government moratorium on enforcement proceedings last year affected their operations, but the government’s measures preserved economic activity as well as numerous jobs, which facilitated the fulfillment of obligations for citizens and companies.

– Our business is generally directly related to the ability of companies and citizens to repay their debts, which the pandemic has definitely made more difficult for some, and research and data indicate that indebtedness is also rising here. The amount of support paid to entrepreneurs is also an indicator that many were forced to save their businesses and jobs in these circumstances, but the good tourist season and other economic indicators for this year are encouraging, although uncertainty remains regarding the further impact of the pandemic on business and life in the coming months – they emphasize at B2 Kapital, where they say they have managed to preserve employment and, with even more sensitivity and understanding of the situation, continue to engage in dialogue with clients regarding debt collection.

Payment Culture

Clients, they say at B2 Kapital, are approached constructively by applying an individual approach to resolving debts, which means that they offer the possibility of amicably defining a debt repayment plan, taking into account the situation in which the person finds themselves and respecting their financial capabilities and personal circumstances.

– Together we find the best and sustainable solution for each individual client, which we achieve through transparency in communication, understanding, and flexibility – they note at B2 Kapital, which is an international holding.

Keeping this in mind, they say, there is no difference in operations in other markets and in Croatia, but they notice one difference, which is reflected in the level of financial literacy and citizens’ awareness of the obligation to repay debts. At B2 Kapital, they believe that this awareness and literacy in Croatia should be increased, which would certainly reduce the number of debtors.

– The payment culture characteristic of Northern European societies such as Norway, from which our business model originated, means that individuals take responsibility for their debts, whether they are individuals or legal entities, and actively work to repay them. As citizens and as companies, we all need to behave responsibly financially – both towards ourselves and towards the entities we do business with – they convey from that company.

Fear of Calls

At Coface, as director Igor Pirnat states, they expect an increased number of collection processes, a higher number of blockages, and insolvency proceedings in the near future.

– After the abolition of state support for entrepreneurs, we expect an increase in the number of cases for debt collection, but also more blockages and insolvency proceedings. The pandemic is taking its toll: raw materials and production processes are becoming more expensive, and purchasing power is decreasing. In such situations, more cases are expected, but also more difficult collections – said Pirnat, adding that entrepreneurs should not fear their calls because Coface employees primarily want to help them.

Debtors, he adds, are never approached aggressively; they always listen with understanding and try to find the best solution based on the information received.

– Debtors in most cases cooperate well, so we reach agreements very quickly, and we conclude cases quickly and efficiently – concludes Pirnat.

Challenges of ‘Fintech’

And in the debt collection sector, there are also fintech-companies offering entirely new services. One such company is the Slovenian P2P Finance, which has developed a P2P platform for the purchase of overdue receivables. As Sašo Breitenberger, director of P2P Finance, explained to Lider, the P2P platform represents an online organized market for mutual, i.e., direct financing of Croatian companies through which members of the P2P platform trade (buy and sell) claims, thus obtaining additional liquidity on one side or returns on invested funds in the purchase of claims on the other side. On the P2P platform, companies with excess liquid assets (investors) meet those that need financing for working capital (small and medium-sized enterprises).

– One of the services, along with online short-term loans, on how to access financing through the P2P platform is also the online sale of receivables of companies that arose based on delivered goods or services, and only receivables that are not due, meaning that a deferral of payment for specific obligations was previously agreed upon between the supplier and the buyer. In this way, we facilitate access to liquidity for companies, especially during this period of the corona crisis, which has significantly affected supply chains and payment habits of economic entities in certain economic sectors. On the other hand, during the pandemic, investors have become more cautious, which makes it difficult for the P2P platform to develop at full speed. Due to the aforementioned, additional effort is invested in checking the creditworthiness of each member of the platform when financing, and additional security instruments are sought in accordance with the risk assessment – emphasized Breitenberger. 

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