Total household debt in the U.S. reached $17.5 trillion in Q4 2023, with credit card balances increasing to $1.13 trillion. With increased delinquency rates for all types of debts, companies in America are finding it hard to collect unpaid debt.

Debt management and collections systems help companies of all sizes keep revenue flowing by streamlining the collections process. What does it mean for you as a customer? Read on to learn more about how this system works, what it does, and how it impacts you as a borrower.  

What Is a Debt Management and Collections System?

A debt management and collections system helps companies manage their collection process, increase recovery, and reduce costs. While increasing revenue is a major focus for most companies in all industries, unpaid debt leads to many issues, and the most important to them is reduced profitability.

Using a debt management and collections system helps companies ensure that money owed is collected. When your debts become delinquent, the collections or accounts receivable department of the company is responsible for handling everything related to the recovery of the money.

Using an automated debt management and collections system can help reduce error, recover money faster, and reduce bad debt.

Key Benefits of Debt Management and Collections Systems

With features like automated payment processing, payment reminders, and communication tools, a debt management and collection system offers a number of benefits for companies.

  • It makes the collection and receivables management process easier and less complex.
  • Companies may receive payments faster due to convenient payment options, as well as automated payment notifications and messaging.
  • It offers a centralized place for data and record-keeping related to delinquencies, overpayments, and customer payments.
  • Automation features boost efficiency and reduce the need for manual review.
  • Freed-up resources can be used to focus on other aspects of debt collection.
  • It allows companies to resolve collection payment disputes sooner and reduces the number of accounts that end up as uncollectible.
  • Companies may be able to avoid the need to use a collection agency, which may increase profitability.

When May a Debt Management and Collections System Trigger the Collection Process 

Debt management and collections systems are automated solutions. This means that they may trigger specific actions, simply as a matter of procedure, during the collection process. Here are a few scenarios of how this may work:

  • The system may send a payment reminder automatically when a customer’s payment is one week past due.
  • If the payment is still not made after being two weeks past due, it may notify the accounts receivable or collections department.  You may receive a phone call from the collections department when that happens.
  • Details of your communications with the company are noted on your account within the system.
  • If you promise to pay by a certain date and don’t, the system may send you another payment reminder.
  • The company may also set a trigger to suspend your account if you don’t pay by a certain date, even after reminders.

Keep in mind that the company may decide to take further action even after your account is suspended if you don’t pay what you owe. For example, credit card delinquency can lead to legal action, which can result in wage garnishment.

How To Manage Debt as a Borrower

As mentioned above, an automated debt management and collections system can trigger collection calls and notices if you fail to make payments as agreed. However, you can avoid these calls through efficient debt management. Here are a few tips to consider.

Make a Budget

Make a budget before you borrow money to ensure you’ll be able to repay it on time. A budget will give you a clear understanding of your income and expenses and if there’s any room in your budget for debt repayment.

There are several types of budgeting methods to choose from, like the 50/30/20 budget and the zero-based budget. Choose a method that is easy to use and aligns with your goals.

Use Debt Repayment Strategies

If you have multiple debts, consider using debt repayment strategies like debt avalanche or debt snowball to pay them off.

The debt avalanche method involves focusing on the debt with the highest interest rate first. Make minimum payments on other debts while paying down your most expensive debt as quickly as possible before you move on to the next most expensive debt.

With the debt snowball method, you’ll focus on paying off the debt with the smallest balance while making minimum payments on the rest of the accounts.

Consolidate Your Debts

If you have multiple unsecured debts, you can roll them into a single loan with a lower (typically fixed) interest rate and a fixed loan term to make repayment easier and more predictable.

You can get a debt consolidation loan and use the funds to pay off your high-interest debts. You’ll then have a single payment each month with a predetermined payoff date.

Consider Debt Settlement

If you’re already delinquent on your debts, one option is to negotiate with your lender to settle your account for less than you owe.

Debt settlement can allow you to pay off your debt faster and save a considerable amount of money. For example, if you owe $8,000 in debt, you may be able to settle the account for $5,000. After you successfully make this settlement payment, the lender will then forgive the remaining $3,000.

Pay Bills on Time To Avoid Triggering the Debt Management and Collections System 

A debt management and collections system is an automated solution that helps companies recover money from customers through automated payment reminders, better communications and customer experience, and increased efficiency.

When you fail to pay your bills on time, the system can trigger collection calls, letters, and other actions from the lenders. You can avoid these collection actions by paying your bills on time. Setting up reminders or using autopay to make payments electronically is an easy way to do that.