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Water market reform: collecting debt whilst retaining customers

From the Knowledge Centre

Published August 24th 2016 in Debt Recovery & Revenue Management by Vicki Dixon

Vicki Dixon, Head of Operations for one of our key water client end-to-end contact management campaigns, looks ahead to Open Water and the changing debt collection challenges water companies will face...

Next year, when the non-household water market opens up to competition, retailers will be operating under extremely tight margins. Debt collection strategies will therefore be crucial for business performance and cash flow, but with customers free to choose their supplier, customer experience will be equally as important to foster trust, recommendation and loyalty.

The non-household customer base is extremely diverse, varying dramatically in size and revenue - from large conglomerates with multiple sites and high water usage through to sole traders with little budgetary knowledge, unreliable income and low billing values. This presents retailers with the challenge of how to ensure the right collections strategy is adopted for each individual customer taking into account both cost to serve pressures and customer retention strategies.

The cash flow conundrum
Billed by the wholesaler for water and usage of the network, and with regulation implications in place for non-payment, the retailer will be entirely reliant on their business customers to pay for the services provided on time and in full to maintain a positive cash flow. High levels of customer debt and large numbers of customers paying late could well lead to serious issues.

Debt collection must therefore be a key priority. However, as the market will be operating on very tight margins, the cost of debt collection strategies must be carefully balanced with their effectiveness – investing in activities that do not lead to swift results is unlikely to be feasible.

The question of customer retention
In order to recover outstanding debts, the threat of disconnection is one sanction which could be applied, meaning that retailers have the choice to be more aggressive in their stance than is currently the case. However, with non-household customers free to choose their water supplier, strategies must be carefully balanced with customer service and retention strategies.

Threatening disconnection could easily lead to valuable customers switching to another supplier; therefore in most cases a softer rehabilitation approach may be preferred. Retailers must consider longer term KPIs alongside the short term benefit of higher collections rates.

Engaging the customer base
A customer-centric approach to debt collection will be crucial in assisting retailers to both efficiently recover payments and protect valuable customer relationships. A deep understanding of each customer can help retailers to build relationships and tailor their communication and engagement strategies depending on the type of business, how water dependant they are and their own contact channel preferences.

The right strategy for the right customer
Accurate customer segmentation can help determine the right strategy for each customer and their unique circumstances. Internal customer insight should be used in combination with external data sources to build up a complete customer picture. In addition, retailers should aim to engage customers early where there is a perceived risk of payment default, before debt issues actually arise.

However, the costs of strategies and their success must be balanced alongside cash flow and operational margin challenges to ensure that limited budget is not wasted where an improved outcome is unlikely and profitable decisions are made. Customer payment reminders, for example, can be costly yet not deliver the faster payment times they set out to achieve. However, with 41% of customers attributing their late or non-payment to forgetfulness, choosing not to engage in any early intervention activities could prove equally costly. What’s important is to hone strategies to deliver the right message at the right time.

Mitigating avoidable debt
Not all debts are as a result of financial hardship. Billing issues and poor service can lead to protest debt – with 48% of customers we recently surveyed attributing their late payment to these reasons. Reliable and accurate customer billing in combination with customer service excellence can mitigate the numbers of customers falling into debt and the associated recovery costs. Pre-bill cost effective multi-channel customer communications also have a vital role to play in preventing some instances of customer debt.

Looking forward
It’s possible that the household market could also open up to competition as early as 2020. The changes in the non-household market provide a great testing ground for adapting billing and collections strategies ahead of this date.

Also, the water industry is behind other sectors when it comes to best practice debt collection in customers’ minds, as such retailers would be wise to look into the practices, motivators and drivers in those competitive sectors that are performing well in order to help perfect their own strategies.

A more customer-centric and proactive approach to debt collection could well be more beneficial and cost-effective as the market opens – focusing on resolving issues before they arise or early on in order to both reduce debt levels and improve customer experience.


Suggested Further Reading

Knowledge Centre: Research

Counting the cost of debt recovery

Knowledge Centre: News

Protest debt on the rise in the UK

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