“Loans or outstanding credit balances owed that are no longer deemed recoverable and must be written off.”
1. The challenge
UK utility consumer debt is a growing problem of increasing complexity.
UK domestic customer debt and arrears have risen substantially, 76% since Q1 2023, reaching £3.8bn total.
A growing problem
- There are now 3.2m UK households in fuel poverty.
- UK utility debt recovery has an image problem amidst the increasing public concern over rising prices and the fuel/water poverty debate.
- There is growing regulatory pressure to exclude debt costs from allowable revenues/ profits and uncertainty around regulatory reform.
Value of total customer energy debt and arrears
Existing debt processes and approaches are no longer fit for purpose.
Utility challenges
- Utilities have been slow to react and have largely taken debt as “cost of business,” without re-thinking the whole debt lifecycle.
- Data challenges with utilising all available data to drive better debt recovery, often linked to related data service contracts.
- Lack of willingness to tackle the “can’t pay vs. won’t pay” challenge due to PR concerns.
- Affordability issues and the current political and economic climate will make it harder for utilities to collect customer debt.
Increasing complexity
- Delinquency – a multi-year trend with customers increasingly using complaints and regulations to avoid payment.
- Oversight – more stringent spending and pricing caps combined with a focus on debt and collections performance, particularly for low-income customers.
- Workload – twin pressures of performance and efficiency driving staff reductions and the pressure to do more with less.
- Cash flow – the pressure to increase working capital through reduced debt.
2. The solution
An insight-driven approach to completely reimagine the consumer debt problem.
Significant opportunity to take an insight-driven approach.
Re-imagined consumer debt
Predict: Transition from the historical affordability assessment to continually predicting debt-influencing events and implementing credit scores that change with customer behaviour and enable earlier action for predicting default.
Motivate: Overcome the fear/embarrassment that indebted customers feel about contacting their supplier by elevating debt perceptions, motivating propensity to self-cure or self-serve, determining “roll or recover” and response behaviours while truncating collections lifecycle.
Engage: Borrowers are increasingly mobile compared to non-borrowers. Personalise debtor engagement through their preferred channels; establish propensity to respond, integrate NLP and nudge techniques combined with right time, right channel and right voice for every customer.
Collect: Tackle out-of-date debtor data by linking multiple service and credit consumption points to determine true identity and residency. Reduce use of DCA and debt write-off with total recovery cost/benefit and exploit AI for continuous improvement.
Automate: With effective automation, increased activity does not need to increase overheads. World-leading process automation, implemented at speed and with proven reduction in operator time and cycles, enable efficiency in analytical and human execution.
3. The result
Potential transformational value for utility customer debt.
Potential transformational value based on best practice experience from a range of clients and sectors.
4. What’s next…
Our recommendations for top priorities going forward.
Source
Ofgem, ‘Debt and Arrears Indicators’ Data (the total financial value of debt and arrears owed by domestic customers to suppliers for electricity and gas existing for >91 days); Debt – refers to situations where there is an arrangement to repay a balance; Arrears – refers to situations where there is not
