Collections optimisation: survive the oncoming storm of bad debt and protect vulnerable customers

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Economists and forecasters have painted a gloomy picture of the impact of the COVID-19 pandemic on UK society. The impact of lockdowns and travel restrictions on many sectors of the economy was expected to put businesses at risk and pull millions of families into financial hardship. In the energy and utilities sectors, most experts predicted that the knock-on effect would be a huge increase in vulnerable customers and a significant rise in the number of accounts falling into the collections process.

But life is full of surprises. In fact, we’re now seeing figures that indicate that 2020 was the best year on record for collections and reducing bad debt.

What happened to all the bad debt?

At first glance, this seems counter-intuitive, but it’s not too difficult to find an explanation. The UK Government made a huge investment in keeping the economy afloat during the worst days of the crisis, with loans, tax relief and cash grants for businesses, a furlough scheme for employees, and income support for the self-employed.

As a result, while many households saw their incomes severely diminished, relatively few were reduced to a point where they could not pay their utility bills.

Facing up to a brewing storm

While energy and utilities companies have benefited from a lower rate of bad debt in the short term, it’s no time for complacency. While many of the restrictions have now been eased, we are still a long way from the confident, open economy of pre-pandemic Britain. As the race between the vaccination programme and the emergence of new coronavirus variants continues, we may still face months or even years of economic uncertainty.

So, from a collections perspective, the storm is still coming—it just hasn’t hit yet. Managing bad debt is going to be high on the agenda for the foreseeable future, and if your business hasn’t already taken steps to modernise and optimise its collections process, it’s time to move that item to the top of the priority list.

Protecting vulnerable customers

This is certainly the view that we can expect from the regulator. In a previous article , I discussed the findings of Ofgem’s study “Consumers’ experiences with energy during the Covid-19 pandemic”, which analysed the vulnerability of specific groups of customers, such as households with prepayment meters (PPM). Ofgem’s next report is due to be published in the next few months, and it would be surprising if vulnerable customers are not a major focus.

Moreover, the Cabinet Office[1] and the Financial Conduct Authority[2] are currently implementing new standards, processes, and guidelines for local authorities and the financial services sector around customer vulnerability. In the past, we have often seen that what financial services regulators require today, energy and utilities regulators will require tomorrow—so it would be no surprise if Ofgem takes a similar approach.

Optimising collections is good for business

Even without a regulatory imperative, optimising the collections process simply makes good business sense. To protect both their customers and their bottom line, utilities need to keep the number of accounts that fall into collections as low as possible, as well as help customers who are already in collections get back to a regular payment schedule as quickly as possible.

This is difficult to achieve with the traditional, highly manual approach to collections management, where there is little visibility of a customer’s financial health until they have already started missing payments. It’s not enough to collect customers into broad buckets according to the number of days their account has been delinquent.

Instead, energy and utilities companies need to start taking a much more proactive approach. With finer-grained segmentation at the individual customer level, it becomes possible to identify those who are starting to struggle and intervene earlier to help them manage their payments. And with continuous analysis of the performance of collections campaigns, companies can identify the right approach, the right communication channels, and the right offers to make each customer to help them get their household finances back on track.

Taking a smarter approach

The good news is that SAS can help. Our collections optimisation capabilities have helped one of the world’s largest banks yield an additional £5 for every £1 invested in its collections campaigns—and the same approach applies equally well to collections processes in utilities, government, or any other sector.

By using data analytics to treat customers as individuals and applying automation to help manage each case efficiently across multiple channels, we can help energy and utilities companies scale up their collections processes and protect their most vulnerable customers.

Building relationships for the future

Helping customers weather the storm through this difficult period, can foster loyal and profitable long-term customer relationships for better times ahead. To build up this good will with their customer base, they need to take action now—which is why our collections optimisation solutions are designed as quick-to-deploy services that deliver results in weeks.

If you’d like to learn more about how SAS can help you optimise collections to protect both your most vulnerable customers and your company’s bottom line, reach out to me today at emma.mcdonald@sas.com

[1]     https://www.youtube.com/watch?v=v2LvQJ-89To
[2]     https://www.fca.org.uk/publications/finalised-guidance/guidance-firms-fair-treatment-vulnerable-customers

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About Author

Emma McDonald

Emma joined SAS in 2019 as an Engagement Manager as part of the Professional Services Team and then moved into a Client Director position, responsible for UK&I Utilities and Life Sciences organisations. She joined SAS with a background in cloud-based, enterprise analytics and has led several multi-national analytical research and digital transformation initiatives. During her time at SAS, Emma has been involved in numerous projects, driving innovation and AI adoption in various organisations. Emma holds a BSc in Neuroscience and an MSc in Stratified Medicine and Pharmacological Innovation from the University of Glasgow. She is an open source enthusiast and has a passion for helping organisations use data to solve complex challenges and operationalising analytical innovation from concept into production.

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