How are Collectors Collecting Less Than Ever During This Recession?

In many countries, the national economy is suffering from low purchasing power. This is also occurring in the economy of the Netherlands. Even though there is uncertainty among Dutch consumers, which makes them cautious when it comes to their finances, reports show that they are still paying their bills properly. This economy of fear caused many organizations, especially financial institutes, to expect a good percentage of payment deferrals in 2022. Leaving big organizations to wonder about the continuous willingness of consumers to pay their premium.

The explanation behind this occurrence is easy, but indeed contrary to what you would intuitively expect. The first factor is consumers’ fear of being in an unfavorable financial position. The increasing price index in all sectors causes consumers to hold off purchases, reserving money for bills. This does not only apply to leisure products. Revenue in the United State’s grocery industry has been decreasing 5% on average, since the start of this year. This trend is also seen in other large economies. For those countries, the exact statistics are unknown. Cutting down on groceries is not a pleasant situation, but does save capital for monthly bills.

The second factor is Corona savings. During the pandemic, people were less able to spend their money. For one group of consumers, this meant that relatively more money was allocated to a savings account. For another group of consumers, it meant that there was more ability to pay off outstanding debts. The first group is less financially affected by the rising prices. But, regardless of the effect on one’s finances, everyone is aware of the volatile economy.

ABN AMRO, one of the Netherlands’ biggest national banks, is using consumers’ ability to pay off collections as a measurement for debt problems. However, the number of payments made by households to collection agencies is not a reliable indicator. To understand households with outstanding debts more, two groups of households with active debt(s) have been identified. The first group is the households which end up in debt, but make (more) monthly payments to collection agencies than agreed. The second group is the households which end up more deeply in debt, then stop making those payments, and eventually end up with bailiffs or legal debt restructuring. Collectors are collecting more money, because the first group of households is growing.

This growing trend of paying off debts with collection agencies is expected to continue over the course of the coming months. Additionally, ABN AMRO also expects a growth in households who have not started payment arrangements with collection agencies during this period. Experts say that it may take a while before the declining purchasing power becomes a visible factor in the payments made to collection agencies. The main reason for this is that financial institutes are not directly an incassobureau inschakelen, or engaging a debt collection agency, when a monthly payment has not been made. This usually only happens after a 6-month consistent lack of payment.

In view of the decline in purchasing power – about 5% in 2022 – a sharp increase in the number of payments to collection agencies can be expected. However, given the time frame in which households generally build up debt, that will probably not happen until 2023.