A quick glance at current Citizens Advice figures reveals the changing face of household debt. Mainstream credit problems of the post-2008 period are now shifting to problems with priority debts, as many households struggle to pay essential energy, water and heating bills.
The causes behind this switch are varied. First, it is simply not that easy any more for people to get credit, with many still haunted by adverse credit files following the credit crunch. Likewise wage stagnation for the majority of the working population means salaries are not always keeping up with inflation and rising costs. For the non-working population, the “bedroom tax” also had a significant impact on the ability of many households to pay for basic bills.
Managing bad debt
So how can utility companies look to manage this worrying trend and prevent customers getting into significant debt?
Early stage intervention is the most effective and sustainable approach to managing utility debts. But it can be a challenge because it is vital the customer is contacted at the right time, in the right way and with the right message to ensure that as little time as possible is wasted.
Utility customers who fall into a typical arrears cycle will usually flow through a linear process, normally consisting of an internal treatment followed by some outsourced activities (for example, field visits) generally provided by a panel of external credit management suppliers working in competition with one another.
The customer can be in this treatment for months and in this time there will be a significant arrears build-up resulting in a large balance of potential bad debt because of the reliance on outdated and inefficient linear multi-stage/multi-supplier models.
Another major issue is that a traditional recovery strategy based on processes delivered by a combination of in-house teams and outsourced providers makes managing the customer experience a huge challenge. It is not possible to guarantee a consistent customer experience across multiple suppliers, because of the differences in technology, skill sets, experience and strategies that exist between them.
Finally, having a linear set of predetermined time-based customer interactions is no longer sufficient in our data driven world. A truly effective recovery process is one that is underpinned and driven by customer intelligence, ensuring that each case is given the treatment that its specific characteristics require, as opposed to a blunt one-size-fits-all approach. Such intelligent segmentation effectively pulls positive results forward because no time is wasted on unsuitable customer interactions. This in turn significantly reduces bad debt provision.
A reduction in bad debt provision can be realised by moving away from the traditional multi-supplier model and engaging with a single outsource supplier with the scale and expertise to conduct an intense, bespoke, non-linear contact strategy to drive early stage resolution of the arrears. Having one supplier managing the entire arrears cycle from start to end opens up the possibility of targeted campaigns based on the specific requirements of each customer account at each point in the customer journey.
This is achieved by the implementation of deep segmentation models at the outset of the treatment, based on customer data (both external and internal), previous customer experiences, demographic data and residency data. These metrics then combine with the specific account characteristics to define the treatment for that customer, based on the approach that has historically proven to resolve such cases quickest.
As an example, one customer account may be passed through a light touch self-service strategy while another may require an intense outbound dialler campaign. Escalations can be built in also, for example if a customer is seen to be entering the arrears cycle more than once then they can be fast-tracked to a later point in the path.
As a result, each customer is targeted in the most strategic way possible, with the overall aim of reducing treatment times and bringing bad debt levels down.
Protection of the customer relationship is a key concern during early intervention. Most early stage customers who have defaulted on a payment may only need gentle guidance and support to get them back on track. Engaging such customers with a targeted and empathetic attitude at an early stage can make a real difference, as opposed to taking a more stringent approach to customers further down the line.
With one single credit management supplier the customer risk is vastly lowered because it removes the natural significant differences between competing recoveries organisations and ensures a consistent and easily manageable customer experience. Cost to serve is reduced too because management costs vary directly with the number of suppliers in the process – fewer outsourced partners means less management, audit and resource costs.
With statistics indicating that UK households are struggling to manage their basic utility bills, it has never been more important to manage the effectiveness, quality and cost of the end-to-end credit cycle, and this innovative approach offers utility companies the opportunity to not only guide consumers away from significant arrears but to protect customer relationships and to reduce overall bad debt in a cost efficient way.
Mark Cowan, head of business development – utilities sector, Arvato Financial Solutions