How Debt Collection During Covid-19 Pandemic 2021 Changed

Everything in and around debt since the pandemic has changed, from how much debt Americans are comfortable taking on to how willing lenders are to loan out money and what interest rates are reasonable.

Breaking Down the Numbers

Americans struggled with debt like never before during the Covid-19 pandemic. Here are some key facts pulled from Brookings that illustrate how the pandemic impacted consumer debt:

• The pandemic increased credit card debt for 30% of Americans. The most attributed reasons for this were inflation and income loss. The demographic that struggled the most with debt management over this period were parents with kids under 18 years old, with 40% adding debt during the pandemic.
• People struggled to pay bills on time. 28% of cardholders paid credit card bills late during the pandemic. The groups most likely to have missed payments are parents of young children, millennials, < $35,000 earners, and women.
• Getting access to credit became increasingly difficult. 14% of cardholders say that their card issuer lowered the limit on one of their cards, with 13% claiming that their credit cards were involuntarily closed by the issuer.
• Credit scores have been volatile. Approximately 22% of Americans haven’t checked their credit score, 27% have seen it increase, and 14% have had a worsened score.
• Credit, credit, credit! Credit cards are more popular than ever—32% of Americans applied for a new credit card during the pandemic. Many Americans have cited inflation as the reason why they’ve increased their reliance throughout the pandemic, with 46% of cardholders carrying debt from month to month.
• The average American accumulated $1,700 in additional consumer debt during the pandemic. Some of the most common sources of this include mortgages, credit cards, student loans, and auto loan debt. Interestingly, the bulk can be attributed to the uptick in home buying during the pandemic.

Long-Term Effects of the Pandemic

While the pandemic had dramatic impacts on Americans while it was actively ongoing, the long-term consequences may be even more serious. When Americans were asked about how the pandemic will impact their financial goals,

• 51% claimed it would make their goals harder to achieve.
• 41% claimed it would make their goals neither easier nor harder to achieve.
• 7% claimed it would make their goals easier to achieve.

The pandemic also affected Americans’ spending habits. Research shows that 42% have spent less money than usual since the pandemic began, corresponding with changes in daily activities.

How the Pandemic Affected Debt Collection

Debt collection during the Covid-19 pandemic of 2021 greatly changed, especially the temporary restrictions that states placed on creditor’s actions, including:

• Filing Lawsuits
• Garnishing Wage
• Seizing Property
• Freezing Bank Accounts
• Repossessing Vehicles

Furthermore, the pandemic putting different types of businesses in debt led to many owners taking longer than usual to act on collections, creating a massive amount of uncollectible accounts and bad debt expenses. According to CNBC, consumer debt totaled $15.6 trillion in 2021, an unprecedented year-to-year increase.

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How Business Has Changed

Debt Collection Industry Statistics

Now that we understand more about how consumers were impacted by the pandemic and the challenges that the collections industry faced during this time, let’s jump into some statistics sourced from IBISWorld about the commercial debt collection industry and where it stands.

• The collections industry has demonstrated tremendous growth over the past few years. It was valued at $11.5 billion in 2018 and is currently at $20.2 billion in 2023.
• The collections industry has outgrown the pace of the economy.
• The collections industry collects over 30 million debts annually.

How to Successfully Manage Debt Collection After the Pandemic

The pandemic has fundamentally changed how debt collections should be conducted. Businesses have to walk a fine line between making sure they collect on their AR without being overly aggressive or alienating clients still recovering from the pandemic. Here are some tips for conducting B2B collections today.

Capture Additional Data

Proper data collection and analysis can help a business owner identify vulnerable accounts and prevent the collection process from ever occurring. Create a system where you begin gathering and organizing customer data to see what types of accounts are most likely to become uncollectible and what strategies can effectively deter them.

Develop a Segmentation Model

Once you have your information, develop a segmentation model to organize it into relevant categories and aid the analyzation process.

Consider Your Engagement Strategy

Communication can make or break the collections process, so you need to make sure that you’re doing it right. One mistake that many businesses make is that they assume being as aggressive as possible will make it easier. All this does is jeopardize your relationship and damage your company’s reputation. Keep everything cordial, to the point, and objective-driven. Don’t forget to send these communications across multiple channels, so you can be sure that your clients are receiving them.

Work With a Professional

If you continue to struggle after following these steps, then it may be time to work with a professional. For the best partner in commercial debt collection, turn to Rapid Collections! We have decades of combined experience in the industry, and can help get your business’s AR to where it needs to be. Contact us today to get started!