Being the grease in the financial system

Being able to borrow money and buy on credit are foundations of the economic ecosystem. Throughout history, though, there have always been those who cannot pay their debts. That’s when credit management companies step in, keeping the economy running and instilling trust in the system – whatever the macroeconomic fluctuations might be.

Debt plays an integral role in ensuring economic growth. Businesses borrow money to be able to invest in development and innovation. Their investments mean both job creation and technological advances. Similarly, individuals use credit for their own purchasing needs, which also helps the business wheels to churn.

Maintaining and restoring trust

Debt collectors work to help people make good on their debts, even if it takes longer than originally agreed, and for companies to receive their payments, often in advance of them actually being paid by the debtor.

Anna Zabrodzka­ Averianov, Senior Economist at Intrum.

It’s a system that builds on trust; trust that the debtor will pay back to the lender. “When things don’t go as planned and a loan is defaulted on, trust is lost. The person or business may find it hard to get loans or credit in the future. This can make it difficult for an individual to live life to its fullest or for a business to remain competitive,” says Anna Zabrodzka­ Averianov, Senior Economist at Intrum.

Debt collection companies help to prevent that trust from being lost and to restore it when it is lost
Anna Zabrodzka­ Averianov, Senior Economist at Intrum.

Regardless of whether it’s a consumer loan or a company seeking investors, trust that the debtor will be able to repay the debt is key for the creditor to be willing to lend money. “Debt collection companies help to prevent that trust from being lost and to restore it when it is lost,” Anna says.

This gives credit management companies like Intrum a central role for a functioning economy and society.

Given that role, understanding macroeconomic trends – such as the economic shifts of the COVID­19 pandemic and the end of a decade of zero ­interest rates – then becomes key for credit managers. That’s the job Anna was given by the Intrum executive board when they hired her in 2021.  Apart from the general “grease” that credit management companies provide n to the economic system, Anna sees specific ways that they support individuals, businesses and banks.

For individuals, defaulting on a loan can make it difficult to take out credit in the future. By helping them pay off at least part of their debt, debt collectors support their reintegration into the local economy. This way, they resume a role as a full­time participant in the economy and can contribute to their country’s output and growth while also consuming more, which supports industry
Anna Zabrodzka­ Averianov, Senior Economist at Intrum

For businesses, debt servicing helps their liquidity, letting them focus on growth. “Most businesses do not have collection resources or know­how inhouse. Having employees repeatedly calling a customer in default can end up taking time that the employee could have spent elsewhere, adding value. Also, when businesses are not paid on time, they still have to pay their own suppliers and employees. This decreased liquidity may lead to cuts in costs for research and development, leading to decreased growth. Using a credit management company like Intrum allows them to focus on growth,” Anna says.

Thirdly, credit management companies, by investing in portfolios, enable banks to lend more and stimulate eco­ nomic growth. “Selling off non­performing loans to an entity like Intrum allows banks to meet their regulatory requirements on capital adequacy, without having to keep as much capital. Intrum takes care of these portfolios of ‘bad debt’, freeing up funds for the banks to lend to house­holds and businesses. This improves the overall health of the banking sector while also enabling more credit for growth,” says Anna.

Throughout history, credit has consistently become more available. A boost came in the 1950s and 1960s, when buying on credit became increasingly common for consumers. With more credit comes more opportunities – but also risks, and greater demand for debt collection services. Intrum, like many credit management companies, grew rapidly in the coming decades.

Today it is very easy for consumers to access credit, for instance by selecting “buy now, pay later” on e­commerce websites. More people than ever also have credit cards. However, many were caught unprepared by the recent interest changes in 2022 and 2023 and didn’t understand its impact on their debt. That is, until higher interest rates hit them hard.

Over the years, Intrum has continued to educate people on how to spend responsibly and what taking on debt actually means. The “Spending responsibly” campaigns were first launched in the 2000s, initially in Switzerland, before also being used in the Nordics. Today an initiative called Spendido is used in both Austria and Sweden.

“A lack of awareness on what it means to take on debt and what happens if you cannot pay has always been a challenge but is increasingly important today with easier access to credit. Today’s youth have had zero interest rates for as long as they can remember, but that is now changing. Support from an empathetic debt collection company can enable them to make informed decisions about their personal finances and empower them to handle their debt responsibly,” says Anna.

Struggling households and businesses

Rising interest rates, combined with in­ creased inflation, have recently decreased the purchasing power of house­ holds, resulting in higher default rates on loans to certain businesses.

“Historically, in times of inflation, retailers, telecoms, and similar industries are the first to need debt collection support. This is because many struggling households will prioritise their mortgage, loan payments, and electricity bill over retail shopping bills or phone bills. Smaller businesses are especially sensitive to not being paid on time, as they may be reliant on only a small number of customers and tend to have smaller financial buffers. Debt collection services help businesses keep their doors open and support the economy,” says Anna.

“Debt collection is truly like grease that keeps the wheels of the financial system turning. It’s important then to understand the external circumstances that can make things difficult for both creditors and debtors. This period of increased inflation and interest rates will not go away any time soon. Even after inflation abates, I predict that the days of ultra­low interest rates are behind us. We must adapt our advice, approach and payment plans to these circumstances to help everyone cope as best as possible,” says Anna.

“Knowledge of the macroeconomy is important for everything we do at Intrum. I host an open quarterly webinar for all colleagues, enabling us to stay informed about the current macroeconomic situation. This way, we can provide better support to our clients, our customers, and the economy – a win­win­win that, of course, benefits us as well,” Anna concludes.