Energy suppliers' debt books are growing as the Covid-19 impact emerges.
As we see the first of the coronavirus protections begin to be lifted it’s time for energy suppliers to take stock of the stark financial situation their customers now find themselves in.
At the beginning of March, The Money Charity reported that 12.8m households had less than £1500 in savings . With the ONS quoting an average household spend per month of £2342.40  it’s easy to see why in an April survey they found that nearly half of all adults expected their financial situation to worsen over the next 12 months .
These worries appear to be materialising as a May publication from StepChange estimates that 2.8m people have fallen into arrears during the crisis with utility bills an issue for 1.2m of those. 
Businesses have been similarly impacted – in a separate ONS survey from September nearly half of companies currently trading reported a decrease in turnover and 28% said they had less than 3 months of cash reserves. With 75% of businesses accessing the job retention scheme and almost half opting to defer VAT payments it’s not surprising that in some sectors, 23% of businesses believe they face a moderate to severe risk of insolvency. 
Whilst this is clearly a worrying time for both households and businesses that are struggling, it’s also a worrying time for energy suppliers and they need to manage their cashflow carefully heading into winter.
Many suppliers are not set up to handle a growing debt book as they’ve purposely focussed on lower cost, customer friendly Direct Debit offerings which in more normal times means less chance of getting into arrears.
Those that do have collections journeys in place will likely find that they’re not effective at handling the volume of customers now struggling to pay and are often overly reliant on external DCAs.
On top of that, Direct Debit isn’t a cast iron guarantee of payment. If Direct Debit adequacy and failed mandates aren’t managed closely then there’s a good chance that any debt problems are being hidden and will materialise through winter.
Suppliers needs to be tackling this problem head on now to limit its impact on their business.
For those wondering where to start I’d recommend some simple and practical steps.
1) Understand your debt book.
Segmentation is key and allows a more targeted response to similar groups of customer issues to drive engagement and resolution.
Start by separating your can’t, won’t and shouldn’t pays as each of these need a different approach.
For ‘can’t pays’ it’s not a surprise that more customer conversations = more long term resolutions but in the world of automated processes it’s often overlooked. ‘Won’t pays’ need journeys with plenty of opportunities to pay easily that get to escalated enforcement quickly. For ‘shouldn’t pays’, focus on quickly getting to the bottom of whatever account issue is stopping them and getting it fixed.
Identifying these groups is as much of an art as a science. It may become clear further down the line that a won’t pay is actually a shouldn’t pay etc. but there are some broad indicators to help you get started. For example, a total lack of engagement, multiple complaints and working or operating in severely impacted industries could be read as won’t, shouldn’t and can’t, respectively. Additionally, external data sources may help; particularly open banking based affordability assessments which are growing in popularity.
2) Don’t let perfect be the enemy of good.
It can be tempting to want to get a fancy new collections system with all journeys fully built, all comms perfectly prepared and new teams created with intensive collections training, but this is slow and expensive. Increasing your debt collection activity doesn’t need massive investment up front.
It’s critical that if you’re going to contact a customer, the advisor needs to be able to have an empathetic and openminded conversation. They also need to be equipped to deal with any customer service issues that might be flagged, but that’s it. If you’ve got a good advisor and a telephone, you can get started.
That’s probably a slight simplification but it goes to illustrate the point that short, targeted campaigns over SMS, email and phone can be incredibly successful and help you learn what works for future. External partners could be a short term solution to increasing your capacity and collection skill whilst you develop internal capability.
3) Start work now on the longer term.
The impacts of Covid are going to be enduring and combined with your own business growth mean you will encounter more and more customers that aren’t paying.
Building a solid collections strategy is important but prevention is better than cure as they say and that’s incredibly true when it comes to debt. It is far harder to help someone get out of debt than help keep them out of debt in the first place.
Focus on building early warning systems into upstream journeys that help you spot that something has changed in a customer’s circumstances.
Regularly review both individual Direct Debits and your adequacy policy to ensure you’re not unwittingly putting your customers in a financial situation they’ll struggle to get out of.
Make sure you’re staying on top of billing exceptions as late or incorrect bills are a huge driver of customer debt.
Finally, make the most of your acquisition journeys to properly understand who your customer is. Credit checks are helpful to understand affordability and risk. Focus on getting right contact information for your customer so if a problem does arise in future, you can contact them easily.
Debt is often under resourced and under prioritised but without the attention it needs debt books will continue to increase and the financial impacts will continue to be felt by both customers and suppliers.