A paper published today by Fraudscreen claims a new approach to assessing risk of non-payment that allows businesses to manage their prospect, customer and debtor relationships more fairly and more profitably.
Following on from the BBC’s Panorama programme ‘Can’t Pay, Won’t Pay’ – Fraudscreen warns that taking a ‘same difference’ approach to people who ‘can’t pay’ as to people who ‘won’t pay’ is costing companies, and our economy, millions.
The paper comes at a time when the UK economy is widely reported to be in recession and many people are slipping into debt for the first time. James Middlehurst, the paper’s author and chief executive at Fraudscreen suggests that the ‘Can’t Pay’ vs. ‘Won’t Pay’ scenario, outlined by Paul Kenyon in the BBC Panorama documentary, albeit an over-simplification of the reality does at least recognise the two elements that make up risk of non-payment - ability and intent.
A distinction missed by traditional credit scoring and an aspect that will become increasingly evident as the economy moves into recession.
He highlights the whole new world of those that have absolutely no intention of paying – ‘Won’t Pay’, as opposed to those who are simply unable to pay – ‘Can’t Pay’. Middlehurst asks “What does it matter that a person has plenty of cash if he has absolutely no intention of paying you a penny?”
Middlehurst advises assessing risk by combining both ability and intent to pay at the same time. With this approach, Fraudscreen have identified four states of payment likelihood:
· Can Pay / Won’t Pay: These are customers who pass traditional credit scores - but take goods and services with no intention of paying.
· Can Pay / Will Pay: A business’s bread and butter customers. Moreover, their positive disposition towards payment means that should they default in hard times a sensible arrangement could be made to support the customer through hard times
· Can’t Pay / Won’t Pay: This group are typically on low incomes and deliberately seek out attractive promotional offers and extended credit to fund a comfortable lifestyle they could not otherwise afford.
· Can’t Pay / Would Pay: People with borderline credit scores who would make good customers but are rejected on ‘ability to pay’ and those with changes in personal circumstances who are temporarily unable to meet their commitments, but would be sound investments to support through a
Middlehurst goes on to provide examples from various industries, where credit referencing alone could not have predicted non-payment. He comments “Another recent BBC programme highlighted a prime example. Traffic Cops showed a driver stopped for a misdemeanour who presented a genuine insurance certificate despite showing up on the Police database as un-insured.
It turned out he’d paid only his first month’s insurance instalment. This is exactly the sort of activity Fraudscreen can predict across many industries, and to which traditional credit screening is vulnerable to leaving the doors wide open.”
Advising companies on three key strategic areas where predicting payment intent could improve performance, the report recommends:
1. Marketing: Adding ‘payment intent’ as a factor in marketing planning – using the technique to tailor products and messages to those with positive payment intent and screening out those potentially bad customers who have no intention of paying.
2. Customer Service: Improving customer service by developing contact strategies appropriate to individual customers and working with them appropriately should they encounter payment difficulties.
3. Debt & Recoveries: Approaching debt recovery with Fraudscreen’s customer intelligence and adapting the collection approach depending on the customers’ intent to pay. This allows a company to be more sensitive and understanding to people genuinely wanting to find ways to pay.
Middlehurst concludes that “in today’s climate being able to understand and predict ‘intent to pay’ could make the difference between declaring a profit or a loss at the end of the year - companies cannot afford to ignore risk management’s missing ingredient – payment intent.”
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