Tailor Your Collection Strategy for Changing Economic Cycles

Jul 20, 2023

Like most businesses, collections firms can be impacted by changing economic cycles—fluctuations in the economy from expansion to contraction. Understanding how economic cycles impact your firm and recognizing signs of changes can help you minimize the impact to your business and, ideally, remain profitable.

Impact of Economic Changes

Depending on the phase, you firm may face increase payment plan defaults, a shift in the types of debts available, and changes in government regulations. Your clients may also experience reduced profitability. Maintaining strong client relationships may require you to adapt your strategies to align with their needs.


Inflation decreases the purchasing power of money, which can impact collection firms in a several ways.

  • Decreased value of debt. Since inflation erodes the value of money, the value of the debt owed by debtors may decrease. This can make it challenging for collection agencies to recover the full value of debt incurred during a period of lower inflation or deflation.
  • Decreased consumer purchasing power which makes it more difficult for consumers to pay off their debts. This can in turn affect the collection agency’s ability to collect debts.
  • Increased costs, such as higher employee salaries, technology, and infrastructure can put pressure on profit margins. Agencies may have to adjust adjustments their operations, pricing structures, or resource allocation to maintain profitability.
  • Changes in regulations, like increased interest rates or other financial policies can impact agency operations.
  • Changes in consumer behavior. Consumers may prioritize meeting basic needs over debt repayment, which can lead to delayed or reduced payments.


Declining economic activity can affect account recovery and client relationships. Collection agencies may experience:

  • Decreased demand for collections services, as fewer businesses and individuals may be in need of debt collection services. Collection agencies may face challenges maintaining client relationships or renegotiating contracts.
  • Decreased ability to collect debts, since consumers and businesses may have less disposable income. Consumers may also face loss, lower incomes, and bankruptcy, which can impact recovery efforts.
  • Decreased access to credit can impact the collection agency’s ability to finance its operations and pursue legal remedies for unpaid debts. It can also limit your ability to invest in technology, training, and human resources.

Economic recovery and expansion

After a recession, the economic experiences positive growth and improvement. There are opportunities and risks to watch for during this period.

  • Increased competition, since more business may enter the collections industry as the economy recovers. This can make it more difficult for collection agencies to win new business and maintain their market share.
  • Changes in consumer behavior. As the economy recovers, consumers may increase spending or shift their priorities.
  • Increased demand for collections services, as spending increases, more people may borrow more and subsequently default on debts.
  • Changes in credit availability can improve an agency’s ability to finance its operations and pursue legal remedies for unpaid debts.
  • Innovations in technology often coincide with economic recovery. Consider investing in data analytics, digital platforms, and automation tools to streamline processes, prioritize high-value accounts, and optimize communication with debtors.

Strategies for Economic Peak and Downturn

Closely monitor economic indicators like unemployment rates, GDP growth, interest rates, and consumer confidence. Staying informed allows you to anticipate changes and adjust strategies accordingly.

Economic peak

During the peak of the economic cycle, collection agencies may be able to take advantage of favorable economic conditions to grow their businesses and improve profitability.

  • Increase marketing efforts to attract new clients. During the peak of the economic cycle, businesses and individuals may be more likely to incur debts, which can increase demand for collection agency services.
  • Expand services to meet increased demand. For example, agencies might offer additional payment options to better serve consumers.
  • Build partnerships with other businesses or organizations to reach new clients.
  • Invest in technology that can help improve your operations and increase efficiency.
  • Differentiate your firm from competitors by offering superior customer service, innovative strategies, or specialized expertise to remain competitive.

Economic Downturn

One of the biggest risks that collection agencies should watch out for at the peak of the economic cycle is the possibility of an economic downturn.

  • Diversify your client base by working with a variety of industries and types of clients. This can help mitigate the impact of an economic downturn on their business, as different industries may be affected differently.
  • Maintain strong relationships with clients to retain business. Build loyalty and trust by providing excellent customer service and being responsive to customer needs.
  • Look for new business opportunities. Be proactive in seeking out new business opportunities, for example by expanding services or targeting new markets, even during an economic downturn.
  • Review and optimize operations to increase efficiency and reduce costs. This might involve streamlining processes, automating tasks, or identifying areas where they can cut expenses.

Prepare With Flexible Payment Options

Regularly assess the economic environment as part of your regular business planning. Being agile, proactive, and adaptable can help you successfully navigate each part of the changing business cycle.

Review and update your risk assessment models to account for changing economic conditions. This way, you can identify high-risk accounts and adjust your strategies, for example by offering more flexible repayment options to consumers. Consider using automated payments solutions like HealPay’s Treatments to target accounts and offer customized payment options that fit the consumers’ needs based on the current economy.

By clicking “Subscribe” you agree to HealPay’s Privacy Policy and consent to HealPay using your contact data for newsletter purposes.

Related Posts