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Why is Debt Collection an Urgent Topic for Utility Companies?

We’re currently in the midst of a global energy crisis. Adverse weather conditions, the war in Ukraine, and rising inflation mean oil, gas, and electricity prices have reached multi-year highs. Consumers around the world are struggling to pay their utility bills, with many falling into arrears.

Energy inflation rate continues upward hike, hits 27% (Source)

Consider the following figures:

  1. In New York, arrears for electricity and natural gas consumers doubled between March 2020 and July 2021;
  2. Around 1.4 million low-income UK households are currently in arrears of their electricity and gas bills, while an estimated 8.5 million families will struggle to pay the recent £60 increase in their utility bills. 
  3. In Spain, one of the EU countries hardest hit by the energy crisis, approximately 10.9% of citizens could not keep their home adequately warm in 2020 (compared to 7.5% in 2019). 

Hence, governments have been quick to roll out expansive measures to help their citizens deal with unpaid bills. The UK government has introduced one-off discounts that consumers won’t need to repay, as well as certain temporary rebates that will be paid back over five years. In France, the government has cut certain electricity taxes to soften the impact of the energy crisis. Meanwhile, the German government is set to remove its green surcharge, thereby lowering the price of consumers’ energy bills. 

In addition, last September, the Spanish administration decided to remove all taxes from home bills until May (before recouping the lost money with a windfall tax that will raise roughly €2bn). Lastly, Portugal has recently announced that it will be decreasing network tariffs by over 50% for households—thereby lowering the rise in energy bills. 

Unfortunately, while these measures might help to lessen the impact of the energy crisis, they won’t save all households from falling into arrears of their utility bills. Let’s explore why utility providers need to act fast, and how they can collect their debts as easily and efficiently as possible. 

Why utility providers need to act fast

Many consider access to energy a fundamental human right. People need energy to heat their home and use electrical goods. This means they will continue to use energy, even if they cannot pay for it, until their provider cuts them off. 

Utility companies are therefore stuck between a rock and a hard place. On the one hand, utility companies are well within their rights to stop providing free energy to those who cannot pay for it. However, governments recognise just how important it is for people to access energy. Therefore, some governmental measures have been implemented to help those in default on their bills.

Consider the Backbilling Requirements, laid out by Ofgem, the UK’s energy regulator. These requirements “protect domestic and micro business consumers from being charged for unbilled consumption over 12 months old, except for where a consumer has behaved in an obstructive or manifestly unreasonable way”. What’s more, Ofgem has also introduced measures that make it easier for prepayment meter customers that are in debt to switch suppliers. 

That said, utility providers cannot rely on governmental support when chasing past-due customers. Instead, they need to act quickly, identifying high-risk accounts before successfully engaging them in the dunning process. The sooner they begin this process, the higher the chances consumers will pay them back. 

However, consumers are often reluctant to contact energy suppliers. They might feel embarrassed that they cannot pay their bill. Utility providers might then decide to transfer these debts over to a debt collection agency (DCA), which generally adopt aggressive dunning approaches and might harm the brand’s reputation. For example, collections agents might endlessly call consumers or send numerous letters, which makes the repayment process even more stressful for consumers. 

Therefore, it’s better if utility providers can handle their collections in-house and ensure they use the most effective dunning strategies possible. Too many utility companies rely on sending direct mail to consumers. Not only is this time-consuming and costly, but it’s largely ineffective when compared to using digital channels. 

How utility companies can collect their debts efficiently 

By following the four steps listed below, utility companies can collect their debts as easily and efficiently as possible:

  1. Leverage the power of digitisation

Rather than sending out direct mail or calling customers over the phone, utility providers should contact customers via digital channels: email, SMS, social media, etc. These channels are free, the messages are quick to send out, and collections teams can easily analyse the results before fine-tuning their dunning approach (using AI and ML). 

  1. Invest in collections management software

Cloud-native collections management software allows agents to easily identify which of their customers are high-risk. They can then prioritise these high-risk groups, sending out reminders as early as possible, which reduces the chance of these loans becoming non-performing. The best collections management software enables you to identify high-risk customers beforehand, allows you to keep track of all historical interactions in a single platform, and analyses the performance and effectiveness of every dunning strategy. 

  1. Provide self-service capabilities

Self-service functionality not only saves customers from embarrassing situations but also conveys a message that they can handle their debt. By letting past-due customers self-cure and arrange payments or promise to pay themselves, consumers will feel like they have more control—which increases the chance they will engage in the dunning process. 

  1. Creating data-driven reports

Collections teams must pay close attention to their customer data. By keeping an eye on how their consumers behave, collections teams can modify their dunning approach on an ongoing basis. They can work out which debt strategies and collections templates are most effective before prioritising these efforts going forward, which will increase overall repayment rates.

Get ahead of the curve

Times are tough for consumers—but it’s also a difficult period for utility companies. If they let consumers fall into arrears and cannot recoup what they are owed, their businesses will suffer. Hence, it’s crucial they act fast to collect their debts. 

By using a collections management system, leveraging digital channels, offering self-service capabilities, and adopting a data-driven approach, utility companies can prevent consumers’ energy accounts from becoming non-performing. 

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