Affordability assessments – where we examine a customer’s incomings and outgoings to help agree  a suitable payment plan to address their arrears – is  an area where it can be difficult to strike the right balance. This is especially true in the case of self-employed people or customers whose income varies from month to month, where we need to trust and have confidence that the information the customer is giving us is a fair and accurate assessment and reflection of their current situation.  

On the one hand, you need information during the assessment to ensure that the arrangement we come to for repaying the debt is affordable and sustainable for the customer, and doesn’t cause them any detriment.

On the other hand, we need to be wary of avoiding paralysis by analysis, insisting on concrete proof where often there is none readily available, which can cause delays and even detriment because the customer can’t reach an agreement.  There is also a risk of causing detriment by not including certain income or expenditure details in the assessment just because the customer can’t provide hard evidence.  

The ideal scenario is that we see evidence for all income, and can demonstrate it’s a stable regular amount from which a customer can commit to their agreed repayments. Unfortunately life is not like that for everyone – below are some examples:  

  • a taxi driver who also drives school buses, whose income reduced during the school holidays
  • a builder who may be out of work in the winter due to adverse weather conditions
  • a customer in the process of changing jobs who is only receiving part of a salary on their final month
  • customers on zero hours contracts
  • customers relying on overtime or bonuses which may or may not materialise

On the last point, no matter how much we want assurances, in reality most employers will simply not give their employees written guarantees, for example, of the number of hours of overtime they might receive.

There’s also the question of how far to go when examining a customer’s finances. While it might be reasonable to ask a customer when their road tax is due and whether they’re paying for that in one lump sum or spread across the year, is it reasonable for example to ask someone how they’re intending to pay for family birthdays or holidays?

And of course, many people are still paid weekly, fortnightly or four-weekly, which can cause headaches when it comes to budgeting. Whilst you can take a formulaic approach to calculating income and expenditure, many customers certainly come under pressure trying to manage their finances against that formulaic approach.  We do see examples of other organisations multiplying a customer’s weekly earnings by 4 to get a monthly figure, but using a different set of calculations for outgoings – like multiplying weekly pay by 52 and then dividing by 12.  Again this makes matters difficult for customers.

We’ll always talk through all the payment options with customers, like direct debit, standing order or paying by a debit card over the phone. Most organisations prefer a direct debit because they feel it provides more of a guarantee, but that’s not always the best option for customers, especially if they’re not paid on the same date every month. If there’s a chance of them defaulting on their direct debit and ending up in further detriment because of it, other options could be better.

Debt often occurs at the most challenging times in people’s lives, and it can take months or even years to regain financial stability. In our vast experience, most customers genuinely want to pay their bills and get back on their feet as quickly as possible. Unfortunately sometimes this leads them to over-estimate their earnings – or underestimate their outgoings – for fear of negative perceptions. Obviously this can cause problems down the line when they struggle to afford repayments.

It’s a complicated issue and unfortunately knowing what information to ask for and how much detail to go into can be a challenge. But what I would stress is that goodwill and trust with the customer is extremely important, as well as the maths! Sometimes we just need to follow our instincts, because when we’re talking with a customer about their personal finances  we can often pick up little bits of important information that help us shape and position the next question, to give us that overall realistic picture.

At the end of the day, there is always going to be an element of risk with any customer, not just the ones whose income might not be stable.  Even a customer who looks steady on paper, with a regular salary and enough money to afford the repayments, could in theory lose their job tomorrow, get ill, or have a sudden change of circumstance that affect their ability to pay. There are no absolute guarantees with anything. What we do always ensure, however, is that the customer is left in absolutely no doubt that if their circumstances change, they must get back in contact with us at the earliest possible opportunity so we can revise their plan as appropriate. Open lines of communication are key, and we do everything we can to ensure customers feel comfortable and secure talking to us, even if things aren’t going according to plan.

We’re continually investing in trying to get the right balance, working together with our clients. If you have any queries on this topic, please do not hesitate to get in touch with me.

Adele Lomas, General Manager – Recoveries