How debt collection works
Debt collection at Euler Hermes is split into four streams: domestic pre-legal, domestic legal, international out (a UK customer with an international debtor) and international in (an international customer with a UK debtor). Katharine’s role sees her collecting outstanding invoices on behalf of UK and Ireland customers with domestic debts that haven’t yet reached the legal stage.
“As a team, we offer full debt recovery solutions from pre-legal action to enforcement,” she says. “My role is to negotiate and monitor payment plans and try to recover debts as quickly and efficiently as possible. I focus on cases involving large sums and difficult queries or disputes.”
In 2017, UK customers placed more than 3,500 cases with Euler Hermes to collect, with a total value of almost £49 million. However, the 2018 figure is likely to rise substantially. Statistics from the Government’s Insolvency Service show that the number of insolvencies hit a four-year peak in the first quarter of 2018, while Euler Hermes figures for the same period show that both the value and volume of bad debts have doubled compared with the same period in 2017. Overdues have also risen significantly.
Keeping customers happy
“Contact with customers may be direct or via a broker. In a typical day there will be numerous client, broker and debtor calls, emails and letters, not to mention correspondence with external legal and debtor investigating agencies,” says Katharine.
“Clients are keen to know what action has been taken and what next steps might look like. We can advise them on the legal process and we work with two firms of solicitors in the UK,” she says.
“With debtors, we ask for full payment up front during the first call. Usually by this point some of the invoices are more than 60 days overdue so they’ve had ample time to pay. If they can’t pay we look at other options.
“A big part of what I do is providing proactive case updates, advice and recommendations to customers and brokers,” says Katharine. “We always try to have open and honest communication with customers and to serve them as best as possible.”
Staying up-to-date is also essential. “We often attend courses – for example about risk, export trading and how to work smarter. I’ve also attended a mock hearing training course run by our external law partner. It has enabled me to manage customers’ expectations better in this particular area.”
Even so, the economic backdrop is making life challenging for the collections team. “We’re finding that many debtors are either insolvent from the outset, or on the brink of insolvency, and are failing before any payments are forthcoming,” says Katharine.
Meeting the challenge
The good news is that since collections joined forces with claims in 2016, processes have been aligned to provide an improved service to customers. Katharine adds: “We pride ourselves on being proactive and we’ve reduced the timeframes in terms of escalation to legal.”
But that’s not all that’s been done to improve the service. Inclusive collection customers now benefit from indemnification of costs, which was introduced in November 2016. For domestic debts, the commission charge is 10% but, depending on the debt-covered percentage, Euler Hermes will apply indemnification to the charge up to the percentage value of the policy indemnity.
Katharine says: “It sounds complicated, but it means that a customer with a 90% policy indemnity and with the debt 100% covered would only pay a 1% commission charge, which is a huge benefit.”
She adds that recovery of the debt avoids a claim being paid, which helps protect customers’ no-claims bonus. “We’ve calculated that as of March this year we made indemnification contributions to our policy holders at more than £2.1 million since its introduction.”
Katharine has collected over £1.5 million of insured debt for one client alone. “It helped that I visited the customer’s office to understand its business better,” says Katharine. “Visiting customers’ offices allows me to understand their internal process better and build relationships with my day-to-day contacts.”
With claim volumes increasing to their highest in almost 10 years, 2018 looks set to eclipse 2017, a year in which £24.5 million was collected. Not surprisingly, Katharine feels this is clear evidence of how crucial the work of the collections department is to Euler Hermes’ customers.