Tax season is underway and as we know, this tends to be when consumers prioritize using their tax refunds to pay off debt. The IRS has already issued nearly 8 million refunds worth about $15.7 billion, with an average refund of $1,963. According to a 2023 survey by the National Retail Federation and Prosper Insights & Analytics, 33% of respondents said they planned to use their tax refund to pay past-due amounts.
With over one-third of consumers looking to pay down debt with their refund, the question is - who will they pay first? Let's look at four tips to improve your collections strategy so you can get paid ahead of other creditors.
1. Prepare and leverage analytics
An important part of a collections strategy is data analytics. Collecting and analyzing data can help you identify trends, risks, and opportunities. By reviewing past collection performance, you can identify areas of improvement and adjust your strategy accordingly. Additionally, data analytics can help you segment customers into groups based on their payment behavior and help your collections team prioritize collections efforts during the busy tax season.
2. Focus on personalized and positive communication
Prioritizing personalized and positive communication during tax season can improve your chances of collecting outstanding debts as consumers choose who to pay first. Customers treated with respect and understanding are more likely to respond positively to collection efforts. Personalize your communication by addressing the customer by name and using their preferred communication method. You can also leverage technology to automate tailored, empathetic communication that resonates with your customers. A personalized approach to communication can not only improve collection rates, but it can also strengthen your customer relationship and foster trust.
3. Prioritize early-stage communication
Early-stage communications are crucial to any collections strategy, especially during tax season as you want to reach and engage your customers before other creditors do. Instead of waiting for a customer to miss a payment, you should use proactive communication to remind customers of upcoming due dates and encourage timely payments. As the call volume increases during this busy time of year, it's difficult to scale without hiring more call agents. Debt collection software with built-in automation for e-mail and sms outreach enhances your ability to reach more customers in the early stage of collections and help them self-cure their past-due accounts. You can streamline your collection efforts and free up agent time for accounts that require more attention.
4. Offer flexible payment arrangements or payment plans
By making it easier to pay, you will increase your repayment success and collection rates. Offering flexible payment arrangements can be an effective way to improve collections. While one-third of consumers prioritize paying their debt with their return, a large population is still experiencing financial difficulties and needs help to resolve their debt. Offering flexible payment arrangements like a payment plan can help customers chip away at owed amounts over time. While this process may be slower, ultimately, it's better to collect some money than nothing.
Lexop's debt collection software can help you automate the recovery of past-due accounts and foster customer loyalty. Learn more about the five characteristics of a top-performing debt collection strategy to see if we can fill the gaps you're missing in your collection strategy this tax season.