A new type of consumer is emerging in the debt industry – the ‘Covid Debtor’. 

The global pandemic has triggered job losses across the country, seeing people previously in well paid, secure jobs now unemployed. Entire industries have faced unprecedented disruption resulting in tens of thousands of people being made redundant. 

Families who previously had secure incomes, are now finding themselves without financial security which has created an expected surge of consumers needing to turn to debt solutions such as IVAs.  

“These new consumers understand money management, however circumstances outside of their control have led them into debt they can no longer service.” 

With no previous exposure to the debt industry, ‘Covid Debtors’ differ from traditional debt consumers. This is causing significant disruption to insolvency firms, to the point that the cost of managing the debt arrangement, could exceed fees recovered. 

 

Rising costs of onboarding processes as IPs work with new consumer profiles. 

The consumer response to debt solutions is changing as many of the new consumers entering the market have different socio-economic profiles to traditional consumers. Many ‘Covid Debtors’ have pensions, savings and houses that are now at risk. As a result, these consumers are asking more questions about the process, as they begin to educate themselves in the topic of debt solutions.  

 

Fixed fee arrangement IVAs are at risk of making a loss. 

Traditionally consumers look for the lowest payback option due to managing tight budgets, however ‘Covid Debtors’ are predicted to pay back more in order to keep more of their assets.   

Insolvency firms functioning on fixed fee arrangements will be restricted to continue applying the same fees, despite the higher value contributions from the client. This could place firms handling high volumes under dangerous amounts of pressure. With the extended onboarding and supervisory time expected, without streamlined automated systems it may be impossible to complete cases within budget.  

 

Manual processing extending paperwork management time. 

 Due to the difference in consumer profile seen in ‘Covid Debtors’, the bank statements received from the new consumers is expected to be significantly different to those traditionally seen by IPs. These new debtors will have additional financial products and accounts. The result of managing this variation down to the individual bank account transactions will likely result in extended manual paperwork processing times for insolvency practitioners 

 

How will IPs manage increased caseloads, time and costs 

With consumer debt levels rising, combined with regulatory pressure on reporting and fixed fees, insolvency firms are facing serious challenges. Increasing workloads, paired with extended time per case required for Covid Debtors is creating higher costs for firms with paper thin margins. 

In order to cope with rising costs and caseloads, insolvency practitioners will have to implement new systems and processes if they are to survive. Current structures rely omanual processes and painstaking analysis that must be completed for each case and reviewed annually to ensure continued affordability.  

Thpersonal insolvency system is at risk of failing as it’s predicted to become increasingly unaffordable for IP firms with the costly new Covid Debtors’ requiring more time and consultation.  

To reduce costs and make teams more efficient, the debt industry is increasingly looking to technology and automation to deliver the leap in productivity that will ensure cases do not present a loss.  

High volume providers will require streamlined, automated systems in order to increase profits through high number of cases. While small to medium firms have the opportunity for higher profit margins per contributionthey will also require technology to streamline processes in order to grow their business with the influx of cases to be onboarded and supervised.  

More demanding debtors, furloughed staff and payment breaks are substantial risks for insolvency firms in both their cashflow and ability to scale.  

Cerebreon I&E is the new income and expenditure automation tool, enabling insolvency practitioners to complete a fully compliant I&E report in just 5 minutes. 

Trained on 15 million insolvency documents, Cerebreon I&E uses the power of machine learning to sort and categorise bank statements, payslips, P60s and more.   

 

Create an I&E report in line with Stepchange/ SFS guidelines from both scanned document and via open banking.  

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