Debt collection during tax season is comparable to the holiday season in terms of retail—it’s the busiest time of the year. Per a study from the National Retail Federation, nearly two-thirds of consumers anticipate a tax return, and more than a third of the same group who will receive a tax return have plans on using it to pay off debt.
As a result, TEC Services Group considers early-February until May to be the most productive time of the year for successful debt collection.
Tax season affects debt collection, but why?
While it’s tempting for consumers to want to spend the bonus influx of cash on a down payment for a house or car, receiving a tax refund is a great way to start paying off debt. It goes without saying that making monthly payments can often feel like running on a treadmill, and paying off large expenses with the funds from a tax return can ease the burden on consumers.
What we recommend.
Collecting debt from late-paying or non-paying consumers can be frustrating, but we have a few helpful tips to encourage financial wisdom. Keep in mind these consumers are typically doing the best that they can do with their payments and may feel overwhelmed with how much debt they find themselves in.
To encourage your consumers, offer gestures of compassion, such as helpful guidance toward paying down debt. Offer them the good news that their burden of debt can be relieved by using their tax refund towards whatever they owe. Asking consumers to use their tax refunds wisely creates the best of both worlds. Instead of spending it on a vacation or something frivolous, they set themselves up for success by working towards eliminating their debt and changing their credit habits.
Another effective method of successful collections during tax season is to utilize payment plans. During this time, consumers can afford shorter payment plans, and thus each payment installment typically increases.
Your rights as a creditor.
It’s important to keep in mind regulations and legal policy as well. Some may wonder if you can claim a consumer’s tax refund from the IRS. However, there are only four types of debt for which the federal government will withhold a tax refund or send it to a creditor, including past-due federal taxes, child support payments, state income taxes, and amounts you owe to other federal agencies, which could include unpaid federal student loans, for example.
Let’s take on tax season together.
While traditional collection methods may be effective during tax season, successful collections are dependent on positive and productive interactions between consumers and collectors. If your collections agency is looking for new, technology-based collections solutions, TEC Services Group is here to help. Contact us now, and our team of experts will increase your success rates tenfold.