Why Do Customers Not Pay? Profile of Argentina's arrears of payment - 2002 vs 2001

Author's background: Dr. Martin Palladino, MCE, Collection Manager of Proacsa , a collection agency in Argentina and outsourcing unit of Argencard. Dr. Palladino is a lawyer and certified Master Credit Executive of ACA (International Association of Credit and Collection Professionals).

Dr. Palladino has written many articles on collections in different specialized magazines and also he has been a lecturer on the issue focusing on control management, executive information systems and balanced scorecard. Contact Dr. Palladino at Mapalladino@argencard.com.ar.

During 2002 the amount of payments overdue of public utilities increased 15% and the number climbs to 35% in the case of credit card payments and payments of personal credits.

The deepening of the economic crisis in Argentina meant that accounts in arrears would further expand, even among those people that still had jobs. On the other hand, the financial/economic rationale for not paying played a much more relevant role and concentration as in 2002. Those represent 97% of the excuses whilst in times of stability its participation was smaller, i.e. 67% vs. 33% for technical or operative matters, such as non delivery of the payment coupons or balances, non processed payments, problems with maturity dates and so on.

This information is the result of a market research performed during 2001 and 2002 at the Contact Center of Proacsa, a subsidiary of Argencard dedicated to the management and collection of portfolio in arrears of companies of the financial sector and public utilities with over 600,000 cases of customers in arrears.

In 2002, more than half of the customers in arrears in Argentina assured that he/she did not pay his/her bills of a public utility or financial service because he/she had received the bill with delay or simply because his/her salary would not suffice to face all the obligations. This tendency began to show signs of recovery towards the end of the second quarter, but ended the period highly affected by the bad performance of the first quarter.

The percentage, then again, rises to almost 60% in the case of employees, mainly outside of the capital city, who get paid in provincial bonds and, in spite of being paid on time, could not use those notes to make their payments with normality.

Traditionally, arguments such as "we did not get the coupon or the balance" or "payments not processed" explained one third of the cases of arrears in payments. But in 2002 these type of excuses only represented 3% of the reasons used by customers to justify his/her debt. Economic and financial indicators have been more relevant.

Although its relative weight was modified year after year, the principal cause for arrears in payments was "not to receive the salary in due time". In times of stability this motive explained 19% of the cases and in 2002 its importance climbed to 26%, which reflects an increase of 37%. During the survey, the arguments of customers in arrears of payments are quantified, albeit it is not possible to determine whether those are real motives or simple excuses for not to cancel their debts. In any event, reading the data from the viewpoint of the tendency as it is clearly indicated we can extract some conclusions, assuming of course some margin of error, which is however, acceptable.

Together with delays in the payment of wages, another motive that had an increase directly proportional to the deepening of the economic crisis was the one we have classified in Proacsa as "lack of sufficient income to face all the obligations", i.e. when the salary does not suffice to pay all the services certain person has required. In this case the increase was of the 47%.

However, the argument that showed a greater increase was what we call in Proacsa "Regional Situation", that is the case of those people that started to receive their salaries in provincial bonds and that cannot use them for payment of services. This reason already explained 8% of the arrears in payment and last years increased 166%. However, this indicator, was not even during the whole year, as its peak was between January and April 2002, and towards the second semester the situation was stabilized because payment of almost all financial and services obligations was possible with such provincial bonds. During 2002, arrears in payment of public utilities increased by 15% whilst arrears in payments of financial services (banks, credit cards, personal credits, and so on) increased by 35%. It is noteworthy that in this case, the historic behavior of customers in arrears in Argentina as people always chooses to refrain from paying to the bank instead of the electricity or the telephone as those services can be cut off.

The increase in arrears of payment was even in all the social sectors and the sectors with less income continue to offer levels of accomplishment higher than those of the rest of the society. In spite of the crisis the economic sectors C and D (the ones with the lowest income), have shown a stronger tendency to pay than that of the rest of the society, albeit this is not new, but the confirmation of an historic tendency.

The increase of arrears in payment had also a relation with the behavior of the creditors that before the magnitude of the crisis were impelled to grant benefits to their debtors. The indisputable growth of the arrears of payment also brought about more flexibility of the creditors that are more eager to give something in order to recover at least a part of the debt.

Nowadays, from day 90 it is very common that the debtor gets a reduction of the debt, or at least a very interesting financial help.

Survey Specifics (Exhibit 1)

According to a survey made during 2001-2002 at the Center of Contacts of Proacsa, a subsidiary of Argencard dedicated to the management and collection of portfolio in arrears of payment of the financial and public utilities sector over more than 600,000 cases of customers in arrears, the motives and excuses for not paying has experienced severe changes from 2001 to 2002.

During the negotiations and contact the motives/excuses that the debtor uses as explanation for not paying his/her debt are analyzed. The result shows that the economic/financial arguments gained relevance and concentration in 2002.

These statistics are realized through a technological tool that allows us to analyze the composition of the management portfolio through a monthly survey of cases. We aim to analyze a significant part of the cases in order to avoid survey errors; hence only a portion of no less than 15% of the portfolio is analyzed.

The data obtained allows us to determine the working conditions, the kind of employer and the motives and excuses for not-paying of a certain portfolio of debtors.

This tool also allow us to predict the behavior of the portfolio and the monthly collection. The comparative evolution of these indexes is frequently analyzed. This permits us to evaluate the tendencies by seasons and the reaction of the portfolio before the political and socioeconomic environment.