Rethinking debt collection: why recovery strategies should protect customer lifecycle value
By Christian Lärka, Manager, Asset Finance Products, Banqsoft.
Asset financing companies have traditionally treated collections as a secondary concern. The reasoning being that lending is secured against a physical asset. In the event of a default, that asset can be repossessed and sold.
From a narrow credit-risk perspective, that logic holds. But viewed holistically, the thinking is outdated. Repossession is not a successful outcome. It is an operational failure point, indicating that the financing provider has lost control of the customer relationship and resorted to the strongest form of risk mitigation – often through an external debt collection agency.
From a lifecycle perspective, the value of a financed customer is not limited to a single contract.
These agencies are typically optimised for recovery. Their role is to maximise the likelihood of repayment once a case has been escalated, often under tight timelines and structured fee arrangements. While this model works well for late-stage arrears or fully defaulted cases, it is not designed to preserve customer relationships.
Repossession also introduces other operational costs. The asset must be located, recovered, transported, stored and resold – typically into a secondary market where realised values fall short of expectations. The process is slow and rarely optimal from a cash-flow perspective. More importantly, it closes the door on future business with the customer.
Yet periods of payment difficulty are often driven by short-term liquidity constraints. Treating these situations as terminal events – escalating quickly to external collection or repossession – ignores the possibility of continuation of the customer relationship. In short, traditional collection approaches risk converting a temporary disruption into a permanent loss of value.
“From a lifecycle perspective, the value of a financed customer is not limited to a single contract. It extends across renewals, refinancing, additional products and future asset cycles. By the point of repossession, that future value has effectively been written off. What remains is a recovery process focused on minimising loss rather than preserving revenue,” explains Christian Lärka, Manager, Asset Finance Products at Banqsoft.
The commercial implications are clear. Research by PwC[1] shows that 29% of consumers stopped doing business with a brand after a poor customer experience. Findings from Accenture[2] point in the same direction: banks in the top 20% for customer advocacy achieve 1.7x faster revenue growth. In financial services, customer acquisition costs are high and products are hard to differentiate. This makes existing customer relationships central to long-term profitability.
“When recovery is treated as an outsourced function, it becomes difficult to balance short-term gains with long-term customer value,” says Lärka. “A more effective approach brings collections back into the core of the organisation, strengthening control over customer engagement, access to data and regulatory compliance. The objective is to manage collections in a way that preserves viable customer relationships.”
When recovery is treated as an outsourced function, it becomes difficult to balance short-term gains with long-term customer value.
Higher customer retention
As discussed, collection models are structured around escalation. Cases move through predefined stages, with limited flexibility and increasingly standardised communication. The default is eventually passed to an external agency using a separate system and operating under different incentives.
An often cited advantage of outsourcing collections is that a third-party agency can create a stronger sense of urgency. Customers tend to perceive external collection as a more serious escalation than communication from the original lender. However, that effect is not guaranteed and can come at a cost. Outsourced collections may introduce friction, reduce customer trust and damage long-term relationships with the brand. This risk is especially high if external communication is perceived as overly aggressive.
An in-house model, on the other hand, allows financing providers to manage collections as part of a continuous interaction aligned with a customer’s broader history and profile. Timing is critical. Customers in temporary difficulty are often most responsive at the point where payment behaviour first begins to change. Early engagement and consistent communication – alongside flexible payment options – can stabilise the situation before it develops into a more serious arrears case.
“This way of working requires coordination across functions. Customer service, credit and collections teams need shared objectives and access to the same information. Where such coordination is in place, collection becomes less about enforcement and more about managing customer relationships through ongoing engagement,” says Lärka.
Customers in temporary difficulty are often most responsive at the point where payment behaviour first begins to change.
Improved data control and portfolio insight
A second advantage of bringing collections in-house is control over data. Collections activity generates some of the most immediate signals of customer behaviour within the lending lifecycle. Missed payments, partial repayments and broken promises to pay all provide real-time insight into how customers are managing their financial obligations.
These signals are often more indicative of emerging risk than static credit assessments or historical data. But when collections processes are outsourced, this information can become delayed and disconnected from the wider lending environment. As a result, financing providers lose visibility into how individual cases evolve and how risk develops across the portfolio.
“Managing collections within the same system environment as origination and servicing allows all this data to be captured, structured and analysed as part of the broader customer profile,” says Lärka.
That continuity enables a more dynamic approach to overall risk management. Patterns observed in collections can inform credit decisioning, refine early warning indicators and support more targeted intervention.
“At an individual level, behavioural changes can trigger earlier engagement before cases escalate. At a portfolio level, recurring payment issues within a segment may signal broader pressure in a specific market,” says Lärka.
Fragmented data weakens this feedback loop. Without timely and detailed insight, financing providers are less able to identify emerging risks or respond effectively. Collection becomes a reporting function rather than a source of intelligence.
Bringing collections in-house – supported by systems that integrate data across the lifecycle – restores visibility so that signals can be acted on in real time.
Bringing collections closer to the core organisation strengthens regulatory control.
Tighter regulatory control and compliance
The third driver of bringing collections in-house is regulatory risk. Across Europe and other mature markets, expectations around consumer protection, transparency and fair treatment are tightening. Regulators are placing greater emphasis on how customers in financial difficulty are handled.
In the UK, for example, the Financial Conduct Authority’s FG24/2 guidance[3] emphasises appropriate consideration of individual circumstances and proportionate escalation. At a European level, the European Banking Authority’s Guidelines on loan origination and monitoring[4] require ongoing assessment of borrower risk across the full credit lifecycle. The revised Directive (EU) 2023/2225[5] further strengthens expectations around arrears handling.
In this context, accountability remains with the financing provider regardless of whether collections activities are performed internally or by third parties. Outsourcing does not transfer responsibility. It can, however, introduce complexity in demonstrating that processes are consistent and aligned with regulatory expectations.
“Regulation is not just about what you do, but about what you can prove. Simple differences in systems and processes can create gaps in visibility. This increases the risk of inconsistent customer treatment and makes it harder to show compliance,” says Lärka.
Bringing collections closer to the core organisation strengthens regulatory control. Processes can be standardised and monitoring becomes more immediate, while decision-making can be traced more effectively. As regulatory expectations continue to evolve, this level of oversight is becoming a requirement.
System capabilities now support in-house collections
Historically, many financing providers have relied on outsourcing by necessity. Legacy system architectures, siloed data and limited integration capabilities made it difficult to manage collections effectively within the core organisation. That constraint is now being removed.
Modern platforms are designed to integrate collections processes directly into the broader lending environment. Automated workflows, API-based integrations and configurable decision rules enable earlier identification of risk and more responsive intervention. Customer communication can be coordinated across digital and traditional channels, while decision-making can be supported by up-to-date portfolio insights.
“Standalone collections tools are not enough. The system needs to operate across the full lifecycle, with collections integrated into the same data and processes as the rest of the business,” says Lärka.
It is important to recognise that the shift towards in-house collections does not imply a complete rejection of external expertise. Hybrid models are emerging as a pragmatic approach, combining internal control with access to specialised capabilities.
In these setups, external partners may operate within the lender’s own systems and processes, rather than as fully independent entities. This allows financing providers to retain ownership of data and customer interactions, while benefiting from external knowledge and scalability where needed.
“External partners can still add value, but they need to work within the lender’s own systems and processes. That’s what allows you to combine specialist expertise with full control over data and customer interactions,” says Lärka.
“Financing providers that make the in-house transition successfully will not only reduce losses. They will also build stronger customer relationships, improve regulatory resilience and position themselves more competitively in the market over the longer term,” he concludes.
Author:
Christian Lärka
Manager, Asset Finance Products
Banqsoft, Wallingatan 2, 6 TR, S-111 60 Stockholm,
Sweden.
Tel: +46 8 769 76 00.
Email: christian.larka@banqsoft.com
Banqsoft Headquarters: Østensjøveien 32, 0667 Oslo,
Norway.
www.banqsoft.com
Banqsoft Collect: managing collections as an integrated capability
Banqsoft Collect: managing collections as an integrated capability
Modern collections technology is changing what financing providers can realistically manage within their own operating environment.
Banqsoft Collect is a cloud-based debt collection solution designed to support both in-house and third-party collection processes. It enables financing providers to manage arrears within their own system environment, with access to real-time data, configurable workflows and integrated reporting.
As part of the Banqsoft Software Product Suite, the solution connects collections with Asset Finance contract management and customer data, helping organisations maintain visibility and control across the full lifecycle. This supports more consistent handling of cases, earlier intervention and clearer oversight of portfolio risk.
Notes:
[1] PwC’s 2025 Customer Experience Survey
[2] Accenture: Banking Consumer Study 2025
[3] Guidance from the UK Financial Conduct Authority
[4] EBA: Guidelines on loan origination and monitoring
[5] Directive (EU) 2023/2225 of the European Parliament and of the Council