What's shaping the future of debt collection in Germany? Join Alexander Frick, Country Manager Germany, Austria & Switzerland (DACH), QUALCO, as he speaks with Dennis Stratmann, Managing Director, BDIU, on:
1️⃣ The modernisation of Inkasso: compliance, digitalisation, and shifting consumer expectations.
2️⃣ The evolving role of technology: balancing AI-driven innovation with fairness and data protection.
3️⃣ Why early engagement and a partnership mindset are key to sustainable collections today.
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Read the full conversation:
Alexander Frick: Welcome to Credit One to One. I’m delighted to have Dennis Stratmann, the CEO of BDIU, with us as a guest today. Great that you found time to have this conversation with us. A quick note about Credit One to One. This is a new series we launched at QUALCO, where we talk to people who are relevant in the debt collection industry and have many interesting things to share. So it’s worth listening in and sticking around until the end — because it’s going to be very exciting. I’d like to introduce our guest. Dennis, please tell us a little about yourself.
Dennis Stratmann: Yes, Alex, thanks, first of all for the invitation to appear here as a guest on the pilot episode of your podcast series. I’m Dennis Stratmann. I’ve been with the Federal Association of German Debt Collection Companies for about 10 years. I’m a lawyer, political and communication expert by training. For three years now, I’ve been CEO of Germany’s largest professional association of the debt collection industry. As an association, we represent well over 400 members – debt collection companies, of completely different types and sizes. The majority of our member companies are small and medium-sized enterprises and we also have a handful of very large transnational companies, so a very diverse membership. In terms of market volume, we represent well over 80% of the German debt collection market, in terms of the number of companies, i.e. in the legal services register. This register, in which every debt collection service provider must be registered, contains just under 2000 companies. Most of them, however, are not really active in the market, or only sporadically so, as a side business. Our members are usually active in debt collection as their main business. That’s where the discrepancy comes from. We represent a quarter of the registered debt collection service providers, but they account for well over 80% of the market volume. Every year our members handle claims and assignments from over half a million clients from all parts of the economy. This includes a lot of retail, both online and local, as well as trades, insurance, telecommunications, basically anywhere contractual relationships are created and potentially involve payment obligations. The banking sector is a major client, and each year this results in around 30 million claims from half a million clients that involve debt collection. That means 30 million new assignments for the industry per year. That’s significant growth. Three or four years ago, it was only 20 million. We can, perhaps, talk a bit about the explanation of how 10 million — 50% more — claims are coming onto the market. And of course, not all claims are resolved within one year. At the end of the day, many claims are processed long-term, in Germany sometimes up to 30 years. That is the limitation period. And this means that, depending on the economic situation and how the debt collection process is progressing, there are between 60 and 90 million claims in processing, in good processing per year. These are the portfolios our member companies are working with. Maybe a word or two about what we do as an association. We’re an association of debt collection service providers. We represent their interests in a very broad sense. This includes classic lobbying work, public affairs. We ensure that legislation works in such a way that the legislator can make good decisions with knowledge of the situation in the debt collection market. We handle public relations; we work on the reputation. We are a key player in professional training and development. We have a subsidiary, the German Debt Collection Academy, where we ensure that qualified personnel provide debt collection services. And we’re a contact point for consumers, and also for clients, when conflicts arise during the debt collection process that need to be mediated. These are the kind of services we provide as an association. We’re based in Berlin with between 10 and 14 employees, depending on what you count – including with the subsidiaries. So a small association representing a large, important industry.
Alexander: Many thanks, Dennis, for the introduction. I’d also like to say a few words about myself as well. My name is Alexander Frick. I am the Country Manager for Qualco, based in Munich. In my region, we handle Germany, Austria, and Switzerland. For those who don’t already know, Qualco is a software company with 1,200 employees, headquartered in Athens. But we also have offices in Paris, Milan, London, and other European cities. We have many clients from the debt collection sector. Our core strength is software for debt collection companies, along with other related services.
Now I would like to dive in a bit, Dennis. You’ve already told us very interestingly what the BDIU does. It’s a wide spectrum, many members – 80% of debt collection companies – are members with you. That’s a large number and gives you a lot of influence, of course, simply because you really know your way around in this field. What is the current state of the debt collection industry? It’s developing rapidly. There are many central topics and trends shaping the market. How does the BDIU respond to this? And above all, what are the topics that particularly concern you and are especially important?
Dennis: Yes, you’re right. The debt collection industry perhaps less so, but rather the debt collection market is changing rapidly. I wouldn’t use the buzzword “disruptive” here, but the fact is that debt collection is a service that is always closely aligned with the needs of the client. On the other hand, a debt collection service provider is also a kind of mediator. They step in when something goes wrong between two contractual partners who usually had a good long-standing business relationship. The client, who has fulfilled their part of the contract, no longer knows what to do next — they’re not getting paid — and they hire a debt collection service provider who should help and, of course, in the most considerate way possible. That means it’s not just the client’s interests that matter, but also the concerns of the counterpart — the debt collection service’s direct contact — the debtor. So, we have two parties whose needs the debt collection service provider has to address, and these naturally evolve. On the client side, the fact is that basically anyone can handle debt collection up to a certain point themselves, and if necessary, also the legal dunning procedure. That’s the path to enforce claims through the courts, which they can initiate themselves, but the reality is, we live in a division-of-labor society. All European countries are suffering from a severe shortage of skilled workers, not just skilled workers, but workforce shortages in general, and companies have been focusing more and more for many years on their core business, and the trend is continuing. In other words, online retailers want to focus on offering good products,
doing good marketing and ensuring visibility. They want to sell the products and maybe send an overdue notice or payment reminder, but at some point it’s no longer their area of expertise. They don’t have the legal know-how on how to enforce a claim, how to effectively communicate with the debtor. A lot is changing here. There is a need for a high-quality service and that’s what debt collection provides. Now it’s like this: if we think back 15 or 20 years – you probably also know this – people went shopping somewhere in town centers and paid cash for lots of things – clothes for the children, shopping for yourself. Meanwhile, everything is shifting – even faster thanks to the pandemic – towards online shopping and remote commerce. People buy smaller baskets, they buy socks from one provider, T-shirts for the kids from another, they buy their T-shirt, whatever it may be. And these are all individual transactions, individual contracts. So the number of contracts is increasing rapidly and the values of contracts, i.e. the monetary amounts, are decreasing. So we have an increase in contracts and it’s such that if I have 120 transactions somewhere in online retail, then a certain percentage will have payment issues. So that already leads to more claims going to debt collection. And online retail naturally also brings its own challenges. You don’t always know exactly who is on the other end. People are more spread out, which means that just finding the debtors and finding the right approach is becoming more difficult. The debt collector has to adapt to that. So the debt collection service has to process a significantly larger volume and they have to communicate much more precisely with debtors, with consumers in general, to clarify the situation. One of the driving forces, also among debt collection service providers, they suffer from a shortage of skilled workers. That means they also have to consider: How do I manage this? How can I continue to offer higher quality services without having a large pool of employees, people who provide good service, and who manage the whole process? Here, of course, digitalization is a major topic, in an industry like debt collection, which traditionally relies on being able to scale, being able to effectively support many cases, is now looking at how it can unlock the potential of digitalization. That is, so to speak, the economic side of what is currently changing the market at the moment. The other side is, and this applies to every debt collection sector across Europe, that regulatory pressure is naturally high. It’s a service that naturally, by definition, takes place in a conflict-driven environment. A contractual relationship isn’t fulfilled, someone doesn’t meet their obligations. Then a third party – the debt collection service, the debt collection attorney – steps in and writes letters. Of course, that costs money. Not everyone likes that. I don’t know many people who say: “I received a debt collection letter, that’s great, I’m really happy about it.” There are, naturally, complaints now and then and, of course, that leads to legislators paying attention. And we’ve been seeing, for about ten, twelve years a stronger trend in all industries towards regulation, including very detailed regulation. Two years ago, the former Minister of Justice was at one of our congresses, the former German Minister of Justice Marco Buschmann from the FDP and he said he knows of hardly any industry that in the last decade has been so heavily and intricately regulated as the debt collection market. And that is of course one of the challenges that our members are having to deal with. Regulation always comes with costs. I have to adapt. I have to reorganize my processes. And as an association, we try, of course, to moderate regulation, try to achieve reasonable results. So to summarize: on the one hand, we have the trend toward further digitalization of contract agreements, more distance-selling transactions. As a result, we have significantly more debt collection assignments. We have growing needs from clients, but also from debtors, for individualized communication, targeted communication. More of a consensual path in the debt collection process rather than a path that enforces claims by law. And we have regulatory obstacles in all areas that that don’t make it impossible for the industry to operate well, but certainly make it harder.
Alexander: Yes, that’s an important point you’re making. The collaborative approach between debt collection companies and debtors is, I believe, a key success factor today – treating the person who owes something not as an opponent, but as a partner and as we’ve also seen in many of our conversations, this results in significantly higher realization rates. You said at the beginning that the cases have risen from 20 to 30 million. That’s really very interesting. Maybe you would like to explain what’s behind that.
Dennis: I already mentioned one factor. Mainly, it’s the changed buying behavior, that the clients of debt collection, especially in online retail, are looking to make it as convenient as possible for potential customers to buy products. Shopping baskets are getting smaller, it’s not that less is bought, but rather more fragmented buying, a product here, a product there and therefore more contracts. Naturally, by definition, a certain percentage end up in debt collection. That’s just how it is. I often hear it must be because of the economic crisis, the time of multiple crises. I always have a bit of an issue with that. Debt collection, the service itself, is very diverse. For example, if I work for a large passenger transport provider, for example here in Berlin, or the local public transport here in Berlin or in Munich, of course, there are many people who buy a season ticket. Most pay for it, but there is the occasional person who doesn’t have money for a month and doesn’t pay. But there are also many fare dodgers, and we know from Munich, for example, that fare dodging is seen as a somewhat minor offense. Here in Berlin, it’s almost a pastime to ride without a ticket. So it’s often not even people without money, but people who are careless, or who like the risks, or are trying to save some money, and just try to get away with something, not paying bills, whatever, they end up in debt collection, and these are actually the classic cases that make up a large part. In other words, people who aren’t in financial hardship – at least not in long-term financial distress – who are temporarily unable to pay, where the debt collection service provider then has to step in and find out why the person can’t pay, what the reason is. Do they need a bit of pressure? Do I need to show them these are the consequences. What does the law provide for if you continue not to pay?
Or is that someone where I have to say: "Hey, listen, what’s the matter? Can we find a way forward? Agree payment terms? Do we have to do this all again next time? Do you need a bit more time?
So that is the bulk of cases, and of course we also have cases across all sectors, but especially in parts of the debt collection process where higher-value claims are involved, such as bank loans, financing agreements, and the like, where there are occasionally individual hardship cases, where people really can’t pay the amount. In those cases, of course, it’s also about proceeding with sensitivity – identifying the case management, finding long-term sustainable solutions and if it’s a real case of hardship, also saying: "Hey, you need support that we as debt collection service providers can’t provide. Seek help from a debt counseling service and let us as debt collection service providers try to coordinate with the debt counseling service to find a solution.
Alexander: I was thinking a bit about Legal Tech, you know? That is quite an interesting topic, that there are 500,000 clients currently in this space. Maybe you can say something about that.
Dennis: Yes, Legal Tech is kind of a buzzword that is going around a lot at the moment, but also a good one. I have no problem talking about it. I always say that debt collection has actually been a kind of legal tech for many many years, at least the early to mid-90s. You have to understand that debt collection in Germany is different than in other European countries, the debt collection service is...there’s this public term "debt collection." People think it means someone is trying to recover money for a client, but actually "debt collection" is first and foremost a legal term. In Germany, only lawyers are allowed to provide legal advice. Lawyers also often handle debt collection but usually on a smaller scale than debt collection companies. But under certain circumstances, people other than lawyers are also allowed to provide legal advice. And one of the permitted legal grounds – that’s the legal term for providing legal advice – is also debt collection service. And I have to show expertise to do this. As I mentioned, we cover that as an association. And then I’m allowed, within the context of debt collection services, to provide legal advice in the context of claim enforcement, debt recovery, much like a lawyer would – and in many areas, especially in judicial matters – exactly as a lawyer can. Our members have done this very successfully for many, many years. They have provided high-quality legal advice using IT tools – or, as we would have said back then, automated it and achieved economies of scale. It simply means that a qualified person, a single expert, can with IT support handle many more cases. And debt collection, as you know it, usually means I have a client, the client has many debtors, and I get in touch with them. And Legal Tech is the new trend, the latest buzzword. It is primarily used, also by debt collection companies, but by those that aren’t working simply for one client with many debtors, but those working for many clients in many cases which have one large debtor. In Berlin, this is familiar in the rental segment. There are debt collection companies that tell tenants: "Hey, listen, we’ll check online for you, often IT-supported, to see if your rental contract complies with the legal requirements of the rent index. And if it doesn’t, then we’ll do what we always do as a debt collection company and claim the difference, i.e., the overpayment, and make sure that you sustainably reduce your rent. Something people might also know is passengers’ rights, when flights are delayed or Deutsche Bahn is delayed again, then there are professional service providers and debt collection companies that say: "Come to us. We’ll check what you can claim, what entitlement you have against the company, and we assert it for you, so you get not only your rights but also your money back, and we finance our business case through that. Yes, so Legal Tech is a bit of a trend. Personally, I think that our member companies have been doing Legal Tech for many, many years. It’s basically legal advice that can only be provided in volume with consistent quality if supported by IT and digital technologies.
Alexander: Yes, definitely, because this increase in cases is also significant and it needs to be processed. And software is naturally the tool of choice to professionally handle these things as well. To summarize, Legal Tech basically empowers consumers to assert their claims against businesses, and that is a good thing. We’ve all experienced it: flight canceled, flight delayed. You’re often left hanging or strung along endlessly and in this way, you can enforce your rights that you’re entitled to
Dennis: Yes, I would maybe say something like that. Maybe, excuse me, Alex. I would maybe say debt collection is generally the... Debt collection companies, whether they focus on consumers or not, many can be contacted by consumers. Even those that aren’t focused on them as their main business, because every debt collection service provider aims to help people assert their rights. And lawyers are also allowed to provide this service, but typically they aren’t set up in their law firms to handle the volume of cases. And these are cases, whether it’s tradespeople somewhere in rural Germany who need legal support or delayed air travelers or tenants in Berlin. These are all people who have a sense of injustice. There is a claim that needs to be enforced somehow. They can’t do it on their own. And that’s where the debt collection service provider comes in. Whether you call it Legal Tech or not, it sees to it that with their own legal expertise together with the expertise and the IT infrastructure behind them, they help as many people as possible enforce their rights. Because, of course, debt collection is about helping them get their money.
Alexander: Yes, it’s great that it’s not just a one-way street, not just a case of a business wanting to get money from a debtor, but that it can also be the other way around, that someone wants to assert their rights and debt collection companies do valuable work by giving them that opportunity. Do most debt collection companies actually offer this kind of thing, where someone comes to them with a claim against, for example, an airline? Do they all do this or is it only a certain number of debt collection companies that specialize in this? Or is it part of the overall portfolio of every debt collection company to cover both approaches?
Dennis: Generally, and this is a trend we’re already observing, we’re seeing a debt collection market where companies are becoming highly specialized. Not every company does it, but the demands that are arising just from the different client segments, in other words, where the creditors ultimately come from, are very different. The insurance sector, for example – a major client segment in Germany – often deals with long-term contracts, insurance contracts that sometimes run for a lifetime. The needs there are quite different. The motivation of the debtor to settle the matter is also completely different than in e-commerce, for example, where there’s often no ongoing, long-term business relationship, especially between small online shops. You might only shop there once in your life. But we also have, as I mentioned before, the public transport segment, where there are many fare dodgers, sometimes people who are barely traceable. So the requirements are very different. I have areas where I know exactly what kind of debtor it is. How they think. And there are areas where I don’t even know if the address data I’ve received is correct. Very few companies can cover all of that with 100% success, and when you also factor in the Legal Tech market we need in debt collection, that turns everything on its head again. Now, basically, I have Goliath sitting on the debtor’s side. In other words, I’m dealing with companies that have a high level of legal expertise and know many ways to avoid making a payment, if necessary. So I have to make sure I specialize. We are seeing fewer and fewer companies that are open to all industries. We’re seeing more and more companies, especially among SMEs, saying: "I’ll specialize in this sector, I’ll specialize in that sector, I’ll specialize in this form of debt collection." Market volume where the debt collection market is clearly directed at consumers. That’s a new trend that’s becoming increasingly relevant. But the vast majority of claims, according to industry studies, are consistently about 80 to 90% of claims that ultimately come from companies that want to assert claims against consumers.
Alexander: Yes, but it’s still good that a new field is opening up there. Yes, we mustn’t forget the topic of regulatory challenges and market effects. The law to improve consumer protection in debt collection law passed in 2020 capped fees and reduced the margins of debt collection service providers for claims under 500 € by up to 49%. The most recent – the Secondary Credit Market act – introduced new compliance requirements. What do you think – what impact will these changes have on the debt collection companies?
Dennis: Yes, I already hinted at that. We are now looking back on a decade of intense regulation. More than ten years ago, just over ten years ago, we had the first major round of regulation, back then rather harshly named the “Act against unfair business practices.” Then a few years later came the VFINC act you mentioned, aimed at improving debt collection law, and now there’s an evaluation under way. In addition, we have repeated legislative adjustments that affect debt enforcement and the debt collection process. We have the Secondary Credit Market Act, which regulates a sub-area of debt collection services, namely the debt collection services of banks selling debt claims to third parties, and establishes a new supervisory regime for this. We’ve seen a lot happen. What’s the effect on the market? Basically, as an association, we have never been fundamentally against regulation. Quite the opposite. One of the things we have always advocated for over ten years in all these mentioned laws was centralizing the oversight of the debt collection sector. For a long time, 36 supervisory authorities, district and regional courts, oversaw the debt collection market. Since January 1st this year, there is only one federal authority, the Federal Office of Justice. We fought for that for a long time. We always said: Yes, we also see that on the debt collection market, there are bad actors, companies that legally operate as debt collection service providers because they have a debt collection license, but conduct their business beyond gray areas in illegal territory. There are many companies that aren’t debt collection service providers at all but claim to be. And these are the companies that ultimately cause regulatory pressure, the need for politicians to write new laws. We have always said that laws already exist, but they are not enforced, and if you don’t strengthen oversight, if you don’t centralize supervision and make it capable of acting, then you can write new laws all you want. Nothing will happen. You only burden the companies that act compliantly, and that is kind of the effect we are also seeing. We now have central oversight, and we think that’s good. Let’s see if it really manages to push the few existing bad actors out of the market. But over the last ten years, we have seen many, many laws that regulate debt collection costs and impose information requirements. The debt collection service provider now has to provide pages of information about claims, about the reason for the claim, interest, and so forth, which makes one sometimes ask: Is this really helpful? Does the average consumer understand it? Does every debtor we deal with understand it? We also need to ask whether the fee caps—limits on what debt collection is allowed to cost—really make sense. Basically, a debt collection service provider is free to decide its own fees – it’s a service, it costs money. But fortunately, German law also applies the principle of natural restitution in damages law. In other words, if I cause damage, for example because I don’t pay my invoice, and the creditor has to hire a debt collection service provider or a lawyer, then the party causing the damage must pay for that. What the legislator has regulated is the question of how much money I, as the injured party, can claim from a debtor when I use a debt collection service provider. These amounts are nowadays actually very, very small. For small claims up to €50, the debt collection service can cost between €15 and €30. You first have to run a lengthy debt collection process. And how does one react to that? Either the creditor must pay additional money for legal enforcement, i.e., he must cover the part that is no longer reimbursed by the debtor himself. Many creditors do this, which is also somewhat understandable. Throwing good money after bad is not necessarily a good idea. The other option is that the debt collection service provider works for less. Debt collection service providers understandably do this very reluctantly. The result is that these costs are to some extent socialized. Some of it lands with the client. Of course, they recoup that somewhere through the market. Online retailers adjust their prices somewhat if payment defaults increase, and in the end, the public pays for it. And on the other hand, debt collection service providers naturally have to accept that they no longer receive the, perhaps, generous fees they once did, but have to tighten their belts considerably. But that also means that processes are streamlined. I can no longer respond so precisely to the debtor’s needs. I can no longer offer everyone a generous arrangement, but I have to make sure that I get paid so that I can also finance my business, because I also have employees to pay. We are already seeing regulation that may be well-intentioned – intended to help people get debt relief. One wants to help people avoid unfair costs, but it isn’t always well thought out. And I think that in Germany this has now reached a level of detail that hinders the claims process itself, that also hinders investment and that in the end leads to many debtors getting away with not paying their bills. And these are costs that are spread across society in the end.
Alexander: Yes, exactly. What you say is absolutely right. It’s a vicious circle: low fees, then comes the need to automate, because there are so many cases. You have to take a standardized approach. You can’t treat every case individually. Maybe the very big players can, but the medium-sized and the smaller ones can’t. That’s why automation is an important point. Software can help here or is certainly the tool of choice, also to make things easier in day-to-day operations. The new federal government is now almost ready to start. Hoffentlich wird der Bundeskanzler jetzt irgendwann vereidigt und darf nicht mehr in vollem Amt sozusagen die Dinge tun, die er jetzt ja bereits vorbereitet. Gibt es ein paar Dinge, die sich jetzt ändern werden mit der neuen Bundesregierung? So Stichwort Digitalisierung, der Justiz, oder hast du noch ein, zwei andere Dinge, die du gerne hier mit dem Publikum teilen möchtest?
Dennis: Yes, we’re looking hopefully at the new federal government, because the last one didn’t initiate any projects, but due to the shortened legislative period, of course some things were left undone. There were some projects in the pipeline, especially regarding the digitalization of our justice system, that we were looking forward to, which would have made many things in Germany easier for those seeking legal recourse, as well as for legal practitioners like debt collection companies. And we do hope—and the coalition agreement, which hasn’t yet been signed but hopefully will be soon, points to this—that these projects will now be resumed. In Germany, we have a very legalistic debt collection process. At a certain point, the courts get involved. We have bailiffs – people who exercise official authority and are civil servants. And we have many, many players: lawyers, debt collection service providers, courts, and others who must somehow work together. And all these players have their own systems. There are no interfaces; communication is not fully digital. In Germany, people are still – I wouldn’t say proud any more, but for a long time they were proud of the hybrid file system: a digital file on one side but also still a paper file alongside it. And we have a few absurdities. Let me give an example: if I have a debtor in Germany who doesn’t pay, and that’s not uncommon – 30 million cases per year – there are also people where I have to keep on at them for a relatively long time, because they currently have no money, because they say: "We’re deferring your payment for a few years..." Usually, you want to prevent a claim from expiring. So you obtain a court order. That is initially a relatively simple process on paper. You contact a court and say: "I have a debtor here." Then the court, the debt collection court, sends out a letter. You know them — those yellow envelopes. And if I don’t file an objection or opposition, then the claim is recognized and protected for 30 years. This title is then received by the creditor or their service provider, and it’s a piece of paper. In Germany, depending on which figures you look at, it’s certainly in the ballpark of 100 million titles that are floating around somewhere — not only in our sector but also in others. These are currently stored by the debt collection sector in large warehouses and have to be retrieved somehow, while other countries are somewhat further ahead. For many years we have been calling for a digital register of titles, an enforcement database, or whatever you want to call it — not just digitizing paper. That is the easiest first step and actually more like the kind of digitalization we talked about 10 or 15 years ago. But even that would be progress in the legal system. In addition, the processes of communication between the players must also be digital. That ultimately saves time, saves effort, and that is where we have to get to. But it is quite difficult, and to some extent I do understand the political challenges of getting the different players with their requirements aligned. We have, in the legal system alone, as I just mentioned, five, six, seven core players there. We have large creditors in the business world who also need to interact with such systems. So it’s an exciting project, but I have to say there was already an effort in the last legislative period to do something, to really digitize the justice system, to move away from paper-based procedures, towards digital signatures and so on. Maybe something will happen now. We are optimistic, both for the industry and for the many, many creditors.
Alexander: So are we. That’s crazy. 100 million, yes.
The storage spaces haves to be rented too. That also costs money. So I think everyone is very interested in digitizing these things and moving away from paper. And everyone talks about environmental protection. Yes, I’d love to know how many trees those 100 million letters represent, not to mention everything else. Yes, thank you very much for this explanation.
At the beginning, we already talked about responsible debt collection for vulnerable groups. We said that it’s actually a good idea to proceed with a cooperative approach. How do you see the level of awareness? Is there growing awareness among debt collection companies to support people in financial hardship, supporting them responsibly while still ensuring efficiency and ensuring that the rights of the client are enforced, so that they get their money because, after all, the invoice was not paid. It has to be paid at some point. That’s just the way it is. Are there established practices for identifying and supporting vulnerable consumers? And can you share a bit more from your experience with us?
Dennis: That is also a bit the motto that we as the BDIU have had for many years: "Debt collection means responsibility." When I talk about it, it’s important to emphasize that the primary responsibility of the debt collection service provider is, of course, to the client. It’s no different for a lawyer. In the end, I’m hired as legal counsel by a client who is sometimes more, sometimes less, in a difficult situation. We have a client, it could be from the private sector or from the corporate sector. It’s about financial survival. These are people who need the money that is outstanding, and I have to make sure that I do everything within the law to recover this outstanding amount. I already hinted at this at the very beginning. It is a service that doesn’t just involve the client and service provider, but primarily takes place between the debt collection service provider and the debtor. And here, it is, of course, about having legal instruments to realize a claim, but I can’t exert coercion; the bailiff can do that to a certain extent, but he also has to ask, what can I actually do? And often, especially in difficult cases, I have to proceed very carefully and see how I can, over a longer period, find a solution that is viable for the debtor, which they can also service sustainably, for example a payment plan, and that ultimately meets the needs of the creditor’s management. And here, it’s not – as is often claimed – the case that debt collection companies can just blindly send letters; on the contrary, many letters, especially with debtors who have large debts with many creditors, often happily ignore letters. It is primarily about initiating communication – ideally in writing or by phone. Many debt collection companies offer platform solutions that also include chat functions and so on. So it’s about cases where – and a simple payment reminder shows this with a certain degree of consistency, enforcement measures, reporting to a credit agency – where that is not enough, and that’s often the case when people have no money, then it’s about finding a solution. And that only works through communication. And then there’s the debt collection service, which also has a genuine interest in the client’s needs. No one wants to see on the internet that Company X, Y, Z commissioned a criminal debt collection company that uses pressure tactics. No, one wants a collegial, consensual dispute resolution, ideally also out of court, so without judicial enforcement measures, without compulsory enforcement measures, and so on. As an association, we aren’t … An association doesn’t work by me, as managing director, thinking up things or the president or vice-president thinking up things. It’s a coalition of many companies, and a few years ago it was discussed at our general meeting that we should draft a code of conduct. “Debt collection means responsibility” is a nice slogan, but one also has to look at what it means in practice. How do we, as members of the BDIU, want to act? What do we mean by “fair debt collection”? Our members have, I believe, written down 73 regulations about how they want to act, what fairness means, what measures should be taken, how transparent a debt collection service can and should be, what they do before enforcement measures are taken—for example, before compulsory enforcement is commissioned—and what they do before a report is filed with a credit agency. For many, having a lasting negative credit score is often the worst-case scenario that prevents them from signing contracts. Many people fear this, but our members say: “No, it must be transparent.” The debtor must at all times have the opportunity to understand the measure being taken—what happens if I fail to pay—but also always have the chance to prevent those measures, either by making a payment or, if he believes it is not a legitimate claim being asserted, that he has been wronged. Then it certainly cannot be that a report is simply filed. And our members have set clear rules for this. I believe they have a kind of lighthouse effect in Germany as well. I’ve noticed for many years, and it has increased, that many clients look for a debt collection service, but specifically look for one that is a member of the BDIU. We’re regularly asked to confirm that they are members and have to issue certificates and document that from time to time, “Yes, that is a member of ours, that’s correct”. So that works, and I believe we are increasingly perceived in public not as “the good guys,” we’ll never be that, but as those who do offer a legitimate legal service and also act fairly.
Alexander: Absolutely. I think that’s great. Such an ethical code is very important and I believe, as you just said, clients also look for that and specifically choose companies that follow this ethical code because they are members of the BDIU. So yes – it’s a good thing. Of course, there is also the other side – in the B2B sector – where large companies deliberately stretch the payment terms they actually agreed on, 30, 60, 90 days, simply to 90, 180, 270 days. I have also experienced this in the past myself. That is, of course, very, very tough, because you have commissioned someone to do something for you and then you are left high and dry. How do you see that? Is it still a trend that large companies deliberately extend their invoices to optimize cash flow and balance sheets, continuing to use these practices, or perhaps more than ever due to the current economic situation?
Dennis: Yes, I think it is basically true that in many supply chains there are dependencies—strong players who have suppliers that ultimately supply very few companies, often just one partner, one buyer for their products. And naturally, the buyer is in a very powerful position. If they say, “I’ll pay a bit later,” then you can’t do much about it. The European Union recognized this many years ago and issued the Late Payment Directive, something that applies directly in all EU member states, and it is meant to regulate late payment in business transactions, both between companies and – importantly – between companies and the public sector. Here, too, we find that the public sector is anything but a good creditor. There are many, many invoices affected by payment delays. And unfortunately, the private sector does not have the option of simply issuing its own judgments and carrying out enforcement. So as a business, as a partner, as a creditor, you are often left on your own. And the European Union has long been aware of this. It’s now increasing again. The economy is not doing well, and there is more or less an interest-free credit that one obtains through an arbitrarily set payment term or through late payment. That is, of course, gladly taken. We are therefore somewhat pleased that the EU legislator is becoming active, the payment collection regulation—I just misnamed it—now wants to issue a directive that sets rules and, ultimately, and this is the part interesting for us, establishes for the first time at the European level a regulation on how debt collection costs can look and is also somewhat looking at the German approach. We have a highly regulated system that states, depending on the amount of the claim, we have clear rates. For a large claim, debt collection costs can be higher; for smaller claims, somewhat lower. This is being reviewed and is currently under discussion, but it must also be said that there is significant resistance when the EU legislator wants to regulate payment terms by directive, which then cannot be renegotiated autonomously within the framework of private autonomy between contracting parties. There are players who like this. These are often the smaller players in the supply chain, but there are also many players who say: “Listen, this could seriously hurt me. I then have to rethink my inventory practices and so on. I don’t want that. So it’s a legislative process that’s being discussed with a lot of controversy. At the moment it is somewhat stalled in the European Parliament and the Council, but let’s see, maybe something will happen. What I think is also important is that, in terms of the number of claims, B2B debt collection isn’t the most relevant part of the market. I said at the beginning, about 80 to 90% of all claims are classic claims against consumers. But claims between companies tend to be much larger amounts. Exactly. They are often very complex cases, where our members also often have a very high level of expertise. There are situations in which ships of shipping companies are seized because payments are outstanding in order to exert some pressure. These are cases where you really need a high level of legal expertise to resolve the dispute. We also have many, many companies amongst our members that specialize in this.
Alexander: Yes, a very important topic also, because if you have delivered and don’t get your money, how are you supposed to continue producing? How are you supposed to pay your own raw material suppliers? That is a domino effect that can end badly.
Dennis: Yes, we are currently considering, as in all European member states – as the whole world is – how can we ensure that we keep our businesses liquid? We are living through continuous waves of insolvencies. This has a lot to do with the knock-on effects of the pandemic. There are industries that are simply not really positioned for the future. That due to the growing importance of online commerce and so on, but there are also areas where I simply have liquidity problems because of claims I already have, and that can be resolved by debt collection companies. So our member companies return 6 billion euros annually to the economy, money that otherwise would have been lost. And if you think about it, what does this 6 billion cost the economy? That’s one or more of large projects that the federal government wants to tackle. That’s a lot of money being recovered via debt collection. And we’re not even taking into account what our member companies do beyond debt collection. They manage overdue receivables and our member companies are also active as financiers, operating “buy now, pay later” models, which means, they ensure that online retailers can simply say: “I’ll take care of the contract conclusion and get the money from my, in quotation marks, collection partner, from the company, and they take care of the processing and realization of the whole thing. So, there are many services that are in high demand and are experiencing growing demand. Ultimately, these companies help the economy.
Alexander: I have another question: What is the future of the debt collection industry? We have already briefly talked about it quite a bit. It’s actually looking quite good. The cases are increasing, new fields are opening up. What about cooperation between debt collection companies? Do you see that happening? I can imagine it, especially because there are also many small and medium-sized companies. Do they form partnerships or does each one just do their own thing, perhaps with good reason, because they have been doing it for a long time and also know that it works well for them. Do you see anything happening, that debt collection companies join forces, form partnerships, maybe also partner with technology providers, to move things in their field?
Dennis: You said it looks quite good. Firstly, I think one has to look at it in a bit of a more nuanced way. I think the debt collection market is fundamentally stable in terms of volume and is also growing. There are more claims, but they are smaller in size. I mentioned briefly that debt collection costs are oriented to the amount of the claim. The smaller the claims, the less money I earn in the end as a debt collection service provider. And the effort is not significantly different. Let’s take you as an example, Alex, whether you don’t pay for a pair of jeans costing €60 or whether you don’t pay for the entire grocery shopping for your family, for I don’t know, four or five people. In the end, the workload for the debt collection service provider is the same, but the debt collection costs are significantly lower. And it’s not that less is bought, it’s just bought in smaller quantities. That means I have to do more work for lower fees. That is the current situation. So I’d say, there’s high demand in the debt collection market for debt collection services, the market volume is increasing quantitatively, but debt collection companies have to figure out how they can satisfy the growing demand without letting the quality of service decline. And in doing so, they also have to consider the additional regulatory costs and so on. We’ve mentioned it already, there are now two oversight authorities, there are many reporting obligations and so forth. How can this be reconciled? And we find that a good solution is, of course, digitalization, automation, and also the integration of artificial intelligence. It can’t replace humans, but it can ensure that the existing staffing capacities I have focus on the important, complex cases, and the machine, essentially, the artificial intelligence, whatever you call it, can take care of the simple, trivial cases and handle basic inquiries. But digitalization in a company also costs money. And I do see that larger companies can support this development. They have the necessary financial capacities, to a certain extent external capital too, access to external capital, so that they can invest and implement the necessary digitalization. But especially the medium-sized companies in Germany – I mentioned this at the beginning – we are a very medium-sized industry, and the many, many small companies naturally face a challenge. That’s why it’s a Sysyphean task. We are in a hamster wheel of regulation, evaluation, regulation, and new obligations keep coming, new ones regarding data protection, from professional law, and so on, always new things I have to do. And many small companies really face the question: "How long can I keep doing this? How long can I continue to provide my service? We are seeing that the market, in terms of orders, is growing, but the number of active debt collection companies providing the service is rapidly decreasing. Many small companies are giving up their business, either because the people running them are old, because they can’t find successors. It’s a problem that’s not limited to debt collection, we also see business closures, mergers, acquisitions with active companies where people simply say: "I can no longer manage this” and there are occasional considerations whether individual debt collection companies need to merge to pool know-how.
Alexander: Exactly!
Dennis: But that is not easy either. As I said, if I’m specialized in the small craftsman in my area and I have another company, maybe somewhere in North Germany or somewhere like that, I just said, for the Rhine region, these are two different requirements. My systems, my work processes are completely differently oriented. So just saying: "Let’s join forces, let’s share our capacities." That is actually easier said than done. Which I believe we as an association should try to support to some extent. We try, at least, to reduce the capacities needed to adapt to new legislation. We aim to provide as many services as possible for our members, but I ultimately have to implement the changes myself. So I would say, yes, cooperation. We also see this through mergers, acquisitions, and so on. There are large companies that grow, that can handle the flood of regulations, but many, many small companies face insurmountable tasks. And at the end of the day, these are companies that don’t process many claims but are needed somewhere in the area, and are known in the region. I take care of the claims of the market garden community, the farmers, whatever.
Alexander: That’s important.
Dennis: And the big players don’t do that either. That has to be said very clearly. Large debt collection companies have no interest in handling highly individualized cases. They can’t. And that’s where the small ones step in, but for a small company, a one-man operation, two-man operation, two-woman operation, there are many, many debt collection companies. The same regulations apply as for the big companies. We are already facing that challenge and that’s also a problem for our constitutional state. As I said, in the end it’s about helping people gain access to justice, legal advice, and solutions within our legal system. And for that I need a multitude of service providers, but their number is rapidly decreasing.
Alexander: Yes, that was actually a perfect spoiler for my next question, which we’ve now already answered: What role does technology play in debt collection? That’s the point. As you said, technology is basically a very, very important topic because it simplifies things, because you can handle many cases with few people, but because claims are becoming smaller and thus the fees you can charge often don’t even cover the costs, so it becomes a vicious circle, because technology is expensive and artificial intelligence software, it’s not so easy. But I think time is on the companies’ side because technology is becoming more affordable. You can offer things cheaper, you can, so to speak, often offer things off the shelf that are already preconfigured, where you no longer have to worry: "Oh God, how do I get this software or AI running now?” There are now very smart, compact solutions that can also help smaller companies. I come to my last question, dear Dennis: How do you see the future? What innovations and strategies will be crucial in the future to keep debt collection companies competitive and resilient? We have already touched on many points, but maybe you can give a quick summary—the thing people hear last, which often sticks best in the mind and remains—what do you see there?
Dennis: Yes, I believe debt collection will always be about analyzing the many, many facts, many cases, many claims, often involving individual fates and so on, and saving time by being able to decide as quickly as possible which process is needed for which claims. Where do I need to apply human expertise, human empathy? Where is that required? Where is it ultimately just a matter of sending the letter or making the contact—the call or the text message, whatever—at the right time to the right place? So, which debt, but also just a small reminder, and the simplest possible way shown to pay and resolve the matter. How can I manage my processes effectively to save human resources? Because at the end of the day, the problem will not go away. We have a labor shortage in Germany, and this is true at all levels, from guest services to administrative staff to highly qualified lawyers. It’s difficult. There’s fierce competition for talent and manpower, and companies have to use it as efficiently and strategically as possible, solving debt collection cases quickly but also in a socially responsible way. And I believe the main challenge we have is that I use the technologies that are available effectively to protect the staffing capacity that I always need, because debt collection remains a personnel-intensive service, and to protect and use it in a targeted manner. And I think, in general, we face a broader challenge – and that’s something lawmakers and regulators need to address. We have to strike a balance. We have to ensure that artificial intelligence and digitalization advance in all areas. We need to be a bit bolder. Of course, we must ensure that the use of digital technologies and artificial intelligence remain understandable. We must ensure that human oversight is always present somewhere, but we must not be too fearful, because without digitalization, without its application—especially in debt collection, which is an area that relies on interaction and communication—it won’t work. We’re seeing that other economic areas, if you will, are ahead of us in some respects. We have now, for example, passed the AI regulation in Germany. It has not yet fully come into force. It is already being criticized today. The European Union is now making a new attempt to reform the whole thing once again to some extent. I think that is important. It is simply not enough to have the technology. I also have to encourage my companies, my economy, the people to apply it, and I can’t have so many barriers. Service providers are certainly also an option here. We also have a number of service providers here – Cribe is one of them – in the association, who ensure that, as you said, this is an off-the-shelf solution for smaller companies, individualized products for large companies. But you also have to look at what is technologically possible and which parts of that are also legally feasible. And I think companies need to solve that, but the legislator must also create opportunities, offer scope that can be utilized.
Alexander: Exactly! I think openness is an important issue here, openness to technology, to listen and to engage with things and then see how this might work in the future.
Dennis, I want to say a very, very big thank you from Credit One-to-One for taking the time to share your great expertise. It’s a pleasure to listen to you. I always take something away for myself and want to sincerely thank you for your time. Greetings to Berlin and I wish you a good rest of the week and look forward to seeing you soon at the BIDU conference at the beautiful Timmendorfer Strand. It’s not so long now. You probably still have a lot of work to do. The last meters are often not a walk but a sprint, even if you have already done it many times, but we are very happy to be part of it and I look forward to seeing you there again.
Dennis: Many thanks for everything. Alexander, thank you too. I also enjoyed it. I’m looking forward to seeing you at Timmendorfer Strand. To be honest, most of the work here is done by the team. We already jumped over that, I just returned from parental leave yesterday and am still preparing for my appearance at Timmendorfer Strand. But I am looking forward, I think, to an exciting conference and many of the topics we discussed today, we can gladly explore further there.
Alexander: Wonderful!
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