The EXUS Financial Suite is the perfect debt collections solution for utilities firms
Energy is a fundamental need. It allows us to cook and conserve food, heat our homes and connect us to our loved ones and our places of work. It’s also something that doesn’t come free.
Recent global events have aggravated what was already a difficult situation, with an estimated 50 million people across Europe facing ‘energy poverty’ if things don’t change soon. According to Citizens Advice data published in December 2020, at least 600,000 additional customers in the UK now say they are behind on energy bill payments compared to pre-pandemic.
Things are not looking much better elsewhere either. In Italy, things got so bad that regulator ARERA had to step in and impose the suspension of unpaid energy bills until May this year. In France, meanwhile, the winter truce of rental evictions and energy disconnections that usually ends in March was extended until the 10th of July and in Spain, anyone affected by COVID has been able to suspend their energy bills until the middle of September.
And unfortunately, the worst is yet to come when various salary support schemes come to an end across the block and millions are cast into a situation where they simply can’t afford to pay their debts and keep the lights on. How can the industry best prepare for this incoming war with energy arrears?
The current situation
Despite the stark unemployment and redundancy figures (11.4 million jobs furloughed and a 6.5% projected peak unemployment rate), according to a recent Utility Week report, companies are yet to see the true impact of COVID on their books just yet.
McKinsey’s COVID-19 Global Consumer Pulse Survey found that 11% (Denmark) to 28%(Portugal) of European households expect the negative impact on their finances to persist for longer than a year after the pandemic. This means utilities firms need to be aware of the long-term impact and manage credit risk accordingly rather than relying on unhelpful short-term data.
This artificially inflated data could be due to several reasons. The wealth of different furlough schemes, including the self-employed income support scheme is, of course, going to be a major contributing factor alongside necessary tweaks to the benefits system. Lower overall household expenditure due to the almost complete shutdown of the economy could also be partially responsible and fewer people have also been moving home during the pandemic, for obvious reasons.
However, there appears to be a disconnect between the expected wave of debt and the current energy arrears position that these factors don’t adequately explain. This lack of data makes it all the more difficult for suppliers to offer early-stage advice to prevent financial problems from snowballing into a debt collections issue when support schemes come to an end this summer.
A major concern is the sheer volume of debt that is expected to drop at once, as the safety net is pulled out from under thousands of people who might still be suffering financial loss as a result of the pandemic. But there are also more nuanced worries to consider, such as how utilities companies are going to cope with a major influx of ‘just about managing’ (JAM) customers.
The EXUS Financial Suite is the perfect debt collections solution for utilities firms
The new COVID debtor
We’ve seen from many other sectors that a lot of the people in debt because of COVID are largely asymptomatic debtors that have never been in this situation before. These JAM (just about managing) customers will generally have decent credit and payment records and they are not the kind of customer many collectors are best equipped to handle.
The problem is that while many of these customers might have been regularly paying their utility bills for years, they are living hand-to-mouth and might struggle once the rug is pulled out from under them. Not only are collections teams going to have to deal with a major volume of these kinds of debtors but they’re going to have to quickly cobble together appropriate payment solutions and customer journeys for them. Because they have no historical data to go off.
This also makes giving any early-stage advice difficult. Not only that, but as many of these debtors will be experiencing these issues for the first time, their pride might keep them from actually accepting themselves as debtors. The context of the pandemic poses other issues too. For example, how likely are those that have lost their jobs to regain employment in the short term? This uncertainty makes planning and debt provisions incredibly difficult.
It has been reasoned by some collections teams that taking a more ‘commercial’ approach to forbearance and debt write-offs could be the way to go. This means a deeper level of analysis that’s able to pinpoint what is right not just for every type of customer but every individual. This could lead to lower debt and operating costs but it’s a path that requires the right kind of software to get right.
For advice on digitising your debt collections solutions get in touch with EXUS today
The debt collection software solution
Data and technology solutions are widely hoped to ease the strain utilities companies are going to start feeling over the coming months. The kind of self-serve financial management that customers have become accustomed to thanks to open banking has been highlighted as particularly helpful in giving customers more agency over their debts. For JAM customers, this could be the thing that helps them negotiate these unfamiliar waters.
Debt collections software can help in this situation because it allows utilities firms to better leverage data on their customers and better understand their credit risk positions. This is bespoke software created to create more consistent and accurate consumer models that can help firms identify emerging payment problems and develop suitable repayment plans via a comprehensive customer risk scoring system.
Then, of course, there’s the simple fact that digitising all payment and communication channels just makes a great deal of sense in a world that has been physically (and literally) distanced by COVID. Many European utilities firms have already started using online performance marketing to gain new customers but with a mountain of arrears about to drop, it’s surely time the same effort was made when it comes to collections?
Most crucially, however, investing in reliable debt collections software is a customer-centric solution that makes your company seem more transparent and more sympathetic. Because if there is one thing the world needs more of post-COVID, it’s more sympathy and transparency.
For advice on digitising your debt collections solutions get in touch with EXUS today