B2B energy debt continues to rise. Since we addressed the £1.8bn debt problem in our May blog, the estimate is now £2bn.
While there’s better awareness, discussion and support for households struggling to pay increasing bills, there’s little to no support for businesses navigating the volatile energy market. Let alone organisations providing those businesses with their energy.
While the SME section of the market behaves similarly to domestic customers, they don’t benefit from any of the price-cap protection households have. Higher costs, complex billing, product choice and greater external financial pressures are confounding customers’ issues and exposing your profits to risk.
It’s no wonder we’re seeing more energy suppliers facing growing pressure from rising business customer debt. Over the next two articles, we’ll set out the common challenges and share some techniques (with real-life results) to improve your debt recovery, unlock hidden value in your portfolio and build resilience.
We’ll also look to the future and propose more sustainable ways to approach collections, both for individual suppliers and industry-wide.
Market challenges and the scale of the problem
Unlike the domestic energy market with extensive public data and regular scrutiny, the B2B energy market operates in the dark. Not only is there a lack of shared data and regulatory analysis, but we regularly find B2B suppliers don’t have a handle on their own debt. Many have poor or limited customer segmentation and outdated or siloed management systems, which hide the true scale of risk.
Unmanaged (or poorly managed) business debt affects liquidity and cash flow, while limiting growth, innovation and investment
In 2023, Experian and Citizens Advice estimated SME energy debt at ~£750m. A good indicator of the problem because SMEs make up 99.9% of all UK businesses. However, from our recent analysis, we estimate business energy debt to be £1.5bn-£2bn.
Now that we’ve set out the scale, let’s turn to the complexity facing customers and suppliers. We’ll detail the opportunities for each challenge.
Data quality and debt accuracy
The challenge:
Incomplete or fragmented customer data makes a complex situation even trickier. Suppliers may also be operating with legacy systems that aren’t quite up to the mark. Some have migrated to new systems but may not have focused on debt, looking more closely at operational efficiency, sales, or customer experience instead. Others may be progressing digital transformation projects that are 18 months from completion.
In addition to this, we’ve seen examples of data spread across various systems, with multiple entries and different details, for the same customer.
This all makes debt management harder, and early intervention after pre-debt warnings practically impossible.
The opportunity:
Assess your data to unlock hidden recovery potential. With better data, you can better identify where to focus your attention. Cleanse any duplicate accounts, fill in the gaps and update aging systems to make your debt situation clearer and more manageable.
One of our clients had two different data systems with data inconsistencies. By consolidating and comparing the data, we discovered over £10m of fictitious debt, and significantly increased the volume of usable contact details that had been scattered across systems.
Poor segmentation and customisation
The challenge:
Customers within the B2B energy market are extremely varied across account structure, energy use and payment behaviour. Businesses may be the same size but have considerably different account needs – demand, number or type of meters and payment cycles.
Assuming similar businesses behave the same or need servicing the same is ineffective. But poor segmentation is common and a large driver for poor debt recovery. Segmenting by SME, micro and I&C isn’t enough - good segmentation should be multi-layered.
The opportunity:
Review your customer segments and go deeper. Flag dormant accounts, seasonal or non-standard trading. Highlight accounts with multiple premises, complex billing arrangements or particularly risky energy needs. Track payment cycles, account interactions, broker engagement, etc. With greater segmentation, you will be able to more easily identify risk profiles, tailor communications and adapt collection efforts.
Cash flow pressures and payment volatility
The challenge:
Business payment behaviour is complex and payment delays are often strategic for the individual business’s survival, with longer billing periods and unstable cash flow.
The opportunity:
Once you have better segmentation and historical payment data, you can tailor your engagement strategies to customer style and preference. Automate engagement for scale, but personalise communications for effectiveness.
SMEs may benefit from automated digital campaigns to prompt early payment or flexible payment plans, or self-serve portals to manage everything. However, for more complex accounts and payment behaviour (I&C), relationship-led account management may be best to discuss bespoke payment plans linked to cash flow cycles. Discussing data-driven energy efficiency insights could help them understand further ways to reduce debt.
Other ways to get ahead
Whatever your own levels of debt are, increasing financial pressures on customers will continue to expose weaknesses in systems, engagement models and recovery strategies. Regulatory changes may be some years off in the B2B market, but there are plenty of ways to build your own resilience and stay ahead of the competition.
We help clients take control of their debt recovery by taking them through a tried and tested process – taking stock, taking action, building for the future. Through close collaboration and tailored support, we can help you fully understand your own debt. And we’ll develop strategies for you to intervene earlier, and use your existing tools more effectively to strengthen processes.
- Improve your debt visibility. Go beyond generic approaches and use advanced segmentation similar to those we’ve discussed above to understand which customers represent the highest risk and greatest opportunities.
- Deploy digital campaigns. Targeted email and SMS campaigns can re-engage customers before debt escalates. Whether it’s using your own systems or external white label packages. We’ve helped clients reduce DSO by ~10 days, expediting cash recovery by £150-£200m and improving working capital.
- Fix data gaps. Check for inconsistencies or duplicated data. It might be an eye-opening exercise. Could you be £10m better off, like our client we mentioned earlier?
- Benchmark and monitor performance. Understanding how your collection rates, payment plan uptake, and provisioning compare to industry standards reveals immediate improvement opportunities.
- Assess your debt-recovery process. Our debt maturity assessment looks at ~190 activities across 10 key capabilities. We highlight strengths and provide targeted recommendations for immediate improvement. We created a 6-month programme for one client to deliver ~£50m in debt collections across 5 work streams.
With real-world experience and a collaborative, hands-on approach, we help our clients regain control of rising debt. Clients get rapid, measurable results from our tailored, insight-led refinements. By identifying what’s not working and applying best-practice thinking, we drive sustainable improvements to profit and loss.
In our next article, we’ll share some more of our proven longer-term methods, and the exceptional results our clients achieve. We’ll also dive deeper into how to assess and refine your own debt recovery processes.
If you'd like to discuss how we can help address your B2B debt challenges, contact Rachel Littlewood.
