Personalized Communication Strategies: Towards A New Debtor Typology Framework

TL;DR

This paper introduces a new debtor typology framework based on four behavioral dimensions, enabling personalized debt collection strategies tailored to different debtor types for improved effectiveness.

Contribution

It expands previous debtor typologies by adding a fourth dimension and identifies five main debtor types with distinct responses to tailored communication strategies.

Findings

Five main debtor typologies account for 63% of cases.

Personalized messaging strategies significantly improve response rates.

Different debtor types respond best to specific timing and content of reminders.

Abstract

Based on debt collection agency (PAIR Finance) data, we developed a novel debtor typology framework by expanding previous approaches to 4 behavioral dimensions. The 4 dimensions we identified were willingness to pay, ability to pay, financial organization, and rational behavior. Using these dimensions, debtors could be classified into 16 different typologies. We identified 5 main typologies, which account for 63% of the debtors in our data set. Further, we observed that each debtor typology reacted differently to the content and timing of reminder messages, allowing us to define an optimal debt collection strategy for each typology. For example, sending a reciprocity message at 8 p.m. in the evening is the most successful strategy to get a reaction from a debtor who is willing to pay their debt, able to pay their debt, chaotic in terms of their financial organization, and emotional when communicating and handling their finances. In sum, our findings suggest that each debtor type should be approached in a personalized way using different tonalities and timing schedules.