Collections Strategies The Unable to Pay/ Unwilling to Pay Matrix

March 24, 2009 by Brendan Le Grange

At the highest level, there are two types of customers in collections customers who cant meet their debt obligations and
customers who choose not to. The simplest labels to describe these respective customer groups are unable and
unwilling. Identifying the label that best describes a particular customer is the first step in selecting the optimal
treatment, timing and tone of the collections strategy.
When a well-intentioned customer is unable to meet their debt obligations, the ability to correct that situation resides
largely with the customer. The bank can help, but it is ultimately the customer who must find ways to increase their
income and/ or decrease their costs. In these cases, where the customer is willing to work with the bank to rehabilitate
their account, collections strategies should focus on designing a repayment schedule that works for both parties while
adjusting the customers spending patterns to avoid relapses in the future.
The bank has more leverage to correct the situation when, on the other hand, a customer of sufficient means chooses to
not fulfil their debt obligations. In these cases, the bank must seek to adjust the customers attitude towards repaying the
debt rather than adjusting the repayment terms. To do this, the bank must first identify the source of the customers
reluctance to pay. It is possible that the source of their reluctance is internal to the banks processes perhaps a dispute
relating to the terms and conditions of the loan. These cases are usually easy to correct and are better described as
operational errors than as risk-indicative defaults. It is more common, however, for the reluctance to have an external
source. Collections strategies in these cases can follow one of two broad approaches, either emphasising the benefits of
paying or emphasising the negative implications of not paying. If a customer in the early stages of delinquency displays the
characteristics of someone unwilling to meet their debt obligations, education might be sufficient to correct the
situation. The benefits of correcting a delinquent account could include the waiving of penalty fees and interest, retaining
access to further advances, etc. However, where softer strategies have been unable to halt a customers descent into
further delinquency, stronger strategies may be needed. These would include strategies that that emphasise the negative
aspects of defaulting and include the acceleration of the involvement of internal and external legal representatives.
Despite the importance of differentiating between these two broad customer groupings, it is not always easy to do
so. One useful tool, albeit a slightly reactive one, is the cant pay/ wont pay matrix. Without such a tool, the process of
assigning customers between categories is a complex and laborious one that must be repeated on a case-by-case basis.
The cant pay/ wont pay matrix avoids much of that complexity by defining the two categories using simple and
observable criteria: did the customer agree to a promise-to-pay arrangement; did the customer meet the terms of that
agreement. A customer who agrees to a promise-to-pay is considered willing to pay while the refusal to commit to such
an arrangement would characterise a customer as unwilling to pay. If a customer who had agreed to a promise-to-pay
arrangement and was therefore defined as willing to pay later fails to meet the terms of that promise-to-pay, they
will be characterised as unable to pay. Although this simplification leads to a lower level of accuracy, the simplicity it
adds to the collections process is ample compensation.

The "Unable to Pay/ Unwilling to Pay" Matrix