Why start a debt collection company?

When I first told my friends and family I started Likvido, a debt collection company, the initial reactions were skepticism. The most common reactions were either about mafia and/or beating up people or how it shouldn't be possible to earn money from people not paying the bills...

Big opportunities are often not obvious... And debt collection is more important than you might think. This post is about why I co-founded Likvido.

How can two twenty-sometimes end up thinking about debt collection and later start a company to change the collection industry?

Go back to April 2016 my co-founder and I got funding for our startup Monera. And we performed like crazy.

Over the next year, we grew the business from nothing to a sales runway of +40 million DKK, 45 employees and lots of funding. We worked like crazy and grew the company very fast.

Growth wasn't enough. We sold yearly subscription contracts to small companies. Around Spring 2017, we started to see too few actually paid the bills. In May '17, we had millions of DKK in unpaid debt. We tried calling our debtors, we tried debt collection companies and kept making our product better. Nothing worked. With huge costs and salaries, we could not pay the bills and went bankrupt.

May 2016: frontpage of Børsen, the biggest business newspaper in Denmark

Truth is... When someone doesn't pay the bills, someone suffers

People who don't pay their bills is a huge problem. Especially for smaller companies, the amount of money left on the bank account is the most important number there is. If that number is negative, salaries can't be paid and both owners and employees have serious problems.

This is some of the problems caused by people not paying their bills:

1.

Risk of bankruptcy

Companies rely on their invoices being paid. If their invoices remain unpaid or even significantly delayed, how can they pay their salaries? They cant.

2.

Slower growth

Growing companies invest their cash into activties that doesn't pay off right away. If payments are delayed, or even lost, lots of growth is lost.

3.

Uncertainty

If a company doesn't know if payments are coming, they cannot plan ahead. That means they cannot tasks risk such as hiring the next employee.

4.

Bad relationships

Today, the alternative if a customer pays late, is a very harsh proces including big fees, courts and debt registers. That leads to horrible customer relationships.

But isn't this problem solved today?

Despite being an entrepreneur for more than ten years, I've always believed people not paying their bills wasn't a problem. I just assumed that the debt collection proces worked and that "inkasso" (Danish term) was a great solution.

In practice... Not so much.

1. It's very expensive

Debt collection companies say they're "no-cure-no-pay" (well, the cheapest ones do). Reality is very different. Debt collection companies earning 50%+ of all paid by your customers is not uncommon. They hide their fees, just like banks.

Not to mention most agencies charge a significant monthly/yearly subscription fee.

2. A very limited toolbox

I love companies such as Amazon, Netflix, Spotify and Google. They give me amazing recommendations and know me well. I feel they know me and my tastes.

I was surprised to find out that debt collection today is mostly physical old-school letters and direct calls. Where are personalization, split tests, online payment, mobile payment methods and friendly reminders? No-where.

3. Manual processes

To me, it's obvious the future belong to AI and machine learning. The things we can do today - even without specific skills - is astonishing.

Guess what the biggest source of expenses are for todays debt collection companies? Salaries to run their proces - a proces that could be automated even with relatively simple IT. And with advanced IT, you can go much, much beyond.

It's time for a better solution - enter my startup - Likvido

My co-founder, Maximillian, understands how to build a business, build a sales organization, get funding and he even wrote a book about debt collection. I have a background in e-commerce, conversation-rate optimization and IT. I understand user experiences, mobile-first applications and how data can transform the world. 

We believe we can change the industry.

A dashboard for your cash flow

Debt collection is just a tool, the result is a better cash flow. Likvido is a dashboard for your cash flow. The goal is the company using the dashboard will know how much and when cash will arrive at the bank account.

We also provide a dashboard for those who are in debt, so they can manage their debt and installment plans.

This is important to us.

The biggest reason most companies don't use debt collection companies, are the same reason my friends initial reaction was to ask "oh, so you're going to beat up people?".

Debt collection has a horrible image - and we want to change that.

 

  1. Personalization

    Everyone is different, and with the data we have access to today, we should personalize everything. Everything from how we communicate, when we communicate and the specific words we use.

  2. Protecting the customer relationship

    The most expensive for a company is not the unpaid bill, but a lost customer, forever. Our main focus is protecting the relationship before it goes wrong, and even if something goes wrong, minimize the damage with friendlier options.

  3. Widen the toolbox

    Some are able to pay, some are not. Some are companies, some are not. We need to use a different tool for each patient, and we want to use the whole toolbox, and use the right tool, when it makes sense. Sometimes that tool will be going to court or cold-calling the customer, but more often, it's a friendlier nudge.

We plan to launch 3 products

We believe data isthe most important asset in our business.
More data? Better predictions.

We want to launch 3 product: 2 free products and 1 no-cure-no-pay product. The free products will provide data we can use in our premium product.

April, 2018: No-cure-no-pay debt collection

We are planning to launch our digital debt collection product in April, 2018.

We will launch with a digital platform for both creditors (companies) and debtors (the ones having debt), which will work on all devices including smartphones. In addition to personalization, mobile-first, many payment methods, digital installment plans and fully-automated communication on e-mail/sms/letters, we will also be the cheapest solution in Denmark (... well, also in the world).

Summer, 2018: (Free) credit checks

Debt collection should be avoided, if possible. Providing free credit checks for companies, they can consider if they actually want to give credit and possibly avoid actually having to use debt collection. They can also consider how much credit they should before selling.

This will be a plugin available in all modern accounting systems and also used in our debt collection software to make predictions about the next action(s).

Winter, 2018: (Free) Automating receivables

When talking to people about debt collection, many tried the proces because they simply didn't know they had to pay a bill. Typically this happens when they received letters to an address they didn't use anymore.

We will create a plugin to all modern accounting systems (and with an API), where you can setup an automated flow. This flow will allow you to send sms/email/letter/social-media/e-boks reminders even before the customer should pay, just to remind them their payment is tomorrow. As a customer you will be able to design your own flow. First after sending lots of reminders and the case truly is lost, the case will end at debt collection.

Wish us good luck

I sincerely believe and hope we can change the industry. We can make the world a better place both for companies and the ones owing money. We might start in Denmark, but the ambition is to grow outside, and simply make the world a better place.

Thanks for reading,
Lars Holdgaard
CTO & Co-founder of Likvido

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