By Nick Cherry, Phillips & Cohen Associates
One of the biggest misconceptions I’ve encountered throughout my career is that the highest-risk accounts are always the ones that have already missed a payment. Often, the greater risk lies with accounts still showing as current, even though the behavior underneath has changed. A customer who once paid comfortably may now be carrying higher utilization, using credit for more routine spending, making smaller payments, or relying on short-term accommodations simply to remain technically “current.”
In my experience, that’s where some of the most important collections decisions are made. By the time an account reaches formal delinquency, many of the early warning signs have already been visible for weeks. A reactive strategy focused primarily on delinquency status leaves valuable time between the first indication of financial stress and the first meaningful intervention. Today’s environment rewards organizations that can recognize those changes earlier, while borrowers still have more options available to them.
The broader debt picture helps explain why this matters. According to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit, total household debt reached $18.8 trillion in the first quarter of 2026, while aggregate delinquency remained relatively stable across several lending categories. The Federal Reserve Bank of St. Louis has also noted that credit card delinquency remains broadly comparable across geographies, even as the pace of growth has slowed since early 2024. Stability in headline delinquency measures shouldn’t be mistaken for the absence of financial pressure. Many borrowers continue to face affordability challenges that often become visible through changing usage or payment behavior long before they’re reflected in traditional portfolio metrics.
Looking Beyond the Delinquency Bucket
Waiting for a bureau update or a formal delinquency milestone before changing strategy can become an expensive way to manage risk. By the time the bureau reflects a problem, many borrowers have already been showing signs of financial pressure through their credit utilization or payment behavior. A sharp regression to minimum payments, consistently high utilization for what could be deemed routine purchases, or repeated requests for repayment extensions can all indicate that affordability pressures are beginning to build.
Those signals don’t necessarily tell us that a customer is unwilling to pay. More often, they suggest that financial circumstances have changed. A borrower experiencing a temporary disruption requires a different approach than a customer whose financial position has fundamentally deteriorated.
The question is what organizations do with those observations once they recognize them. When an account consistently reflects signs of financial strain, organizations have an opportunity to review whether a different repayment structure, communication strategy or hardship arrangement may produce a better outcome. Acting earlier often provides more flexibility for both the organization and the customer than waiting for the account to progress further into delinquency.
A payment tells you whether a customer paid. A conversation often tells you why they didn’t. That’s why how we engage can be just as important as when we engage.
Engagement Should Reflect the Customer’s Circumstances
Customers under pressure are less likely to respond to outreach that feels repetitive or hard to act on.
Digital channels, secure portals and mobile messaging all have an important role to play, particularly when they make it easier for customers to engage on their own terms. But those tools are most effective when they reflect the customer’s current circumstances. If the customer recently requested hardship assistance or raised a dispute, that context should shape the next contact. Likewise, if they’ve already expressed a preferred communication channel, organizations should be able to respond accordingly.
The same principle applies to repayment design. A repayment arrangement can satisfy internal policy and still prove difficult for a customer to maintain if it doesn’t reflect when they’re paid or what they can realistically afford. Aligning payment dates more closely with cash flow or introducing a more manageable initial payment can improve the likelihood that an arrangement performs over time.
Technology can help organizations recognize these opportunities earlier, but technology works best when it’s supported by operational experience and informed judgment. The objective isn’t simply to automate outreach. It’s to ensure every customer interaction is more relevant, more timely, and ultimately more effective.
Making Every Customer Interaction Count
Collections is often viewed as the final stage of the lending lifecycle. Increasingly, I believe it’s becoming one of the earliest sources of operational insight. Every borrower interaction provides an opportunity to better understand the financial realities sitting behind the account.
The question isn’t simply whether the balance is recovered. It’s whether the customer was engaged in the most effective way possible.
No two borrowers arrive in collections for the same reason. Some are experiencing a temporary disruption. Others are facing more significant challenges. Treating those situations the same rarely produces the best outcome for either the customer or the organization.
That’s why I believe consistency alone isn’t enough. Organizations also need the flexibility to respond to each customer’s circumstances. Giving teams better information, a clearer understanding of each customer’s circumstances and realistic repayment options creates a stronger foundation for productive conversations than relying on a one-size-fits-all process.
Over the years, I’ve found that organizations don’t improve collections performance simply by increasing activity. They improve it by improving decisions based on data. Better decisions lead to better customer experiences, more sustainable repayment arrangements and ultimately stronger recovery performance.
In today’s environment, successful collections aren’t defined solely by what happens after an account becomes delinquent. They’re defined by how consistently organizations make informed decisions, tailor their engagement to the customer in front of them and create opportunities for better outcomes before options begin to narrow.