In 2010/11, water companies in England and Wales wrote off £329 million of payment arrears. Splitting that between the 22 million households served means bad debt costs the average water bill-payer £15 a year – roughly triple the sum for energy, or the price of 20 VAT-inclusive sausage rolls.
The per-customer debt for individual companies ranges from £1 to £59 and is influenced by a range of factors. The size of bills and the socioeconomic mix of customers determine the level of affordability problems. If people struggle to pay their bills, they are more likely to get into arrears.
The prevalence of metering makes a difference, because measured bills may be collected at smaller intervals throughout the year. The picture can be further blurred by accounting methodology, because companies do not necessarily write-off revenue annually. So the figures do not do much to help anyone determine which company is dealing with debt most effectively.
What does good practice look like? The first challenge is to find out who the customer is. The occupier of a property is liable for the bill, but in a significant number of cases water companies do not know who that is. Firms are in something of a bind because the law gives them a duty to supply but no clout to make customers identify themselves. There are indirect routes to the information – sending out inspectors, buying data from credit reference agencies – but they can be costly. Companies have been known to address bills to “the occupier” in desperation, but without a name, they are powerless to pursue payment.
The government is consulting on plans to bridge that gap and make landlords provide tenant details to water companies or become liable for the bill. The consultation also mooted a voluntary alternative, to the dismay of many in the industry who say that will not work. However, water minister Richard Benyon has indicated a reluctance to impose red tape on landlords, so companies might have to lump it and get creative.
One wheeze to get round the need to know your customer is to arrange for a housing authority to collect on your behalf, for a reasonable fee. Yorkshire Water has billing agreements with three regional housing authorities and estimates that the deal halves the level of arrears. Its customers pay £6 a year each to cover bad debt – significantly less than the £15 national average.
When a customer is on the database and falls behind with payments, there are a number of ways to deal with it. Yorkshire Water places a lot of importance on distinguishing between those who can’t pay and those who won’t pay. The aim is to target available support at the former while aggressively pursuing the latter.
The company gets around 35,000 county court judgements a year. Jonathan Harding, managing director of Loop, Yorkshire Water’s contact centre, says: “The court works very effectively if you are a ‘won’t pay’ – it doesn’t work well if you are a ‘can’t pay’.”
Water companies are not obliged to support cash-strapped customers but many do, through a debt repayment matching scheme or hardship fund. The former can be a pragmatic way to recoup some arrears and get the customer back into the habit of paying.
Yorkshire has Resolve, a scheme whereby the customer pays off part of the debt in instalments and the company writes off a proportionate sum. Harding says 75 per cent of customers on the Resolve scheme go on to make regular payments. The Community Trust, funded out of holding company Kelda’s profits (not customer bills), awards no-strings-attached cash to the most vulnerable. Water companies will soon be able to add social tariffs to the affordability toolkit – the government is to issue guidance later this year.
At Loop, Harding explains, operatives are trained to use every customer contact to collect useful information. They build up a “score card” on each customer that provides a basis for decision-making. It is as much about deciding who not to sue as who to crack down on. Going in heavy-handed against a pensioner who has not paid the bill because he has been in hospital, for example, would not be in anyone’s interests. Simple things like having a person’s age on file means they can avoid fruitless and potentially embarrassing actions.
There are limits to what companies can glean from such methods, however. You might be prepared to tell a call centre worker your date of birth, but would you divulge your income? What about credit card debts? Not to mention the time it would take to collate all that information. A number of firms are considering data-sharing partnerships with credit reference agencies to help gain a fuller picture of a bill-shirker’s financial situation. These arrangements reflect a relatively recent attitude shift in favour of data sharing from the Information Commissioner’s Office.
Yorkshire Water has joined Experian’s credit account information sharing (Cais) scheme. It started accessing credit data this month and is due to send data the other way in June. “We will be the first ones to share how you pay your water bill with that service,” says Harding.
The Cais scheme offers two levels of membership, and some water companies plan to only share information on customers who default. Harding has embraced full membership and says it is better to engage with customers early, before the relationship has broken down. “The rest are just seeing it as a debt collection tool, whereas we are seeing it as more of a way to understand our customers and offer a tailored service,” he says.
Having full membership also means that if a customer dodges a water bill or pays late, her credit rating could suffer. On the other hand, if Experian has little data on that customer and she pays promptly, that could help her secure other forms of credit.
Yorkshire has been getting the message out over the last year and Harding thinks it has already had an impact on behaviour, even before the system has gone live. “We have got £1 million less in arrears outstanding from late payers than the same time last year and we believe that’s because of Cais,” he says.
There were concerns that customers would be up in arms about this trade of their personal details, but the backlash has not materialised. “Everyone feared meltdown but we got something like 20 complaints,” says Harding. “Many customers assumed we already did it. I want us to be in a position as an industry that everybody does it.”
This article first appeared in Utility Week’s print edition of 6 April 2012.
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