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Balancing Risk & Customer Satisfaction
                                Research Summary from
                     Credit & Collection Practices 2008

The current U.S. economic downturn is challenging many consumers, business, and service
providers. Americans are finding it more and more difficult to pay for basic purchases, forcing
many to choose between the bills they can and cannot pay. As a result, public and private
sector companies are seeing a rise in delinquency rates, default, and fraud; many are predicting
a 10 to 15 percent increase in uncollectible debt this year.

Additionally, inflation and rising gasoline prices are making it more costly for companies to
collect. Gasoline prices, as everyone is well aware, have risen drastically in the last year (46
percent), increasing field collection and enforcement costs. The increase in delinquencies and
defaults is stressing existing collection workforces, forcing companies to decide between hiring
on more staff or finding ways to prioritize the work while limiting risk.

As a result, many companies are taking a closer look at their collections process to try to deal
with the increased workload and at the same time minimize the impact of the changing
economy. Many companies are turning to credit modeling to help manage risk more effectively
and identify potential fraud earlier. Additionally, companies are pursuing solutions that will help
them to be more proactive in filtering out bad debt without compromising the high level of
service that has become standard for many industries.

Risk management has evolved into a careful balancing act between customer satisfaction and
prudent financial management. In the past, some companies routinely collected deposits from all
customers—risk mitigation at the expense of customer satisfaction. Credit scoring and
modeling have helped companies better balance risk and satisfaction, objectively identifying the
accounts that require a deposit and those that do not. It’s a win-win for companies and
customers.

Risk modeling can be used throughout the customer’s relationship with the company. Risk
analysis can be applied to active accounts, determining the need to send late payment
reminders or discontinue service, or even to prioritize callers in queue. It can also be applied to
inactive accounts, to determine the most appropriate follow-up based on account payment
behaviors, thereby increasing recoveries.

By minimizing credit related risk up-front and throughout the account life cycle, managers can
reduce operating costs and significantly improve profitability. They can also actively look to
expand their service offerings to customers and increase customer satisfaction, secure in the
knowledge that doing so will not cost the company and shareholders millions in increased
uncollectible funds.




©2008 The Ascent Group, Inc.                                                                     1
Improving Collection Performance
One of the biggest collection hurdles for utilities is the existence of mandatory winter service
disconnection restrictions for non-payment customers. Regulatory moratoriums and
restrictions limit the collection activity that a company can conduct during a specified time
period. A great deal of catch up must be accomplished after the winter moratoriums are lifted.

Apart from the mandatory regulations, collections performance appears to be driven to a great
extent by company size, with built in advantage occurring within companies with fewer than
100,000 customers. Advantage also appears if a company is located within the South or West,
both of which reflect warmer climates.

Smaller companies exhibit better collection performance largely due to small town
characteristics. The smaller customer base enables collections personnel to become very
familiar with customer payment habits, develop personal relationship, and quickly identify
payment trends. Companies that do not have the size advantage must work through their
systems and procedures to recreate the atmosphere enjoyed by small companies. Systems
should be able to stratify collection and payment histories, enabling companies to become
“closer” to their customers so they can better match payment options and assistance to those
in need.

When comparing collections performance, keep in mind the inherent advantages and
disadvantages that are enabled by climate, economics, regulatory restrictions, and location.

Make sure your credit and collection processes, both the people and technology-driven
processes are effective and efficient. Review work tasks, standards, and systems periodically to
identify opportunities for improvement, with a keen eye for those customer-facing processes.
Benchmarking performance is an effective technique to understand your department’s level of
performance and opportunities. Be sure to compare cost and service for a balanced view of
performance. You can actively participate in the Ascent Group’s benchmarking services to
monitor your credit and collection performance and improvement. Contact Christine Kozlosky
at the Ascent Group for more information – www.ascentgroup.com



Benchmark Study of Credit & Collection Practices
The Ascent Group initiated credit and collection benchmarking research during the second
quarter of 2008 to uncover the most effective techniques and strategies for improving
collection performance and reducing uncollectibles. The research explored how companies are
balancing the cost of collection to reduce uncollectibles and improve the bottom line. Topics
investigated included both collection treatment as well as the credit policies that have been
established to support collection efforts. We also examined the technologies that have retooled
credit and collection processes for maximum effectiveness and efficiency. Twenty-eight
companies participated in the research. The following pages summarize the study’s objectives,
findings, and recommendations. We also include a list of innovative and winning practices for
your consideration.


©2008 The Ascent Group, Inc.                                                                   2
Study Objectives
The main objectives of the study were to evaluate the various tactics and strategies used today
to issue credit to customers and collect past due receivables. The study also identified best
practices and opportunities for improvement. Secondary objectives included understanding:
   •   Timing of collection actions and the range of approaches used to encourage customers
       to pay past due balances;
   •   Regulations guiding collection efforts;
   •   The use of technology to reduce costs and improve collection performance.
Participants were asked to share management tactics and strategies, as well as identify any
improvement in performance. The study also asked companies to include lessons learned,
successes, and plans moving forward.


Study Findings & Recommendations
Our participants included companies from Publishing, Services, Telecom, and Utilities, with the
majority of participants from the Utilities industry (88 percent). The majority of study
participants were also from the United States (86 percent), however we did have participants
from Canada, Philippines, India, and Australia. Study participants serve from 20,000 to 4.5
million customers. As a group, participants average 606,000 customers.

Issue Credit Wisely
Only thirty-three percent of participants
routinely use an external credit bureau to score
consumers applying for service—to determine
the need for a security deposit. Credit scoring
can help companies better balance risk and
customer satisfaction—appropriately identifying
the accounts that require a deposit and those
that do not. Take advantage of this technology,
it’s a win-win situation for companies and
customers.

In addition to traditional Beacon scoring, Equifax offers credit scoring based on utility payment
behavior. This energy score is a better predictor of energy customer payment behavior,
increasing the likelihood that deposits will be secured for the appropriate accounts.

In addition to scoring, many companies are actively participating in industry credit exchanges,
such as the National Consumer Telecom & Utilities Exchange. The National Consumer
Telecom & Utilities Exchange is a collection of utilities and telecommunications companies that
have formed a common “database” of bad debts and new customer sign-ups. Participants are




©2008 The Ascent Group, Inc.                                                                        3
notified when information is available about a new applicant or uncollectible account. Investigate
joining an industry credit exchange to further fine-tune your credit issuance process.


Consistency is Key
Consistency is key when it comes to collections. Customers will “shop around” for the best
terms and arrangements. It is essential to clearly define credit terms and provide tools to help
representatives identify and determine the appropriate credit-risk category for callers. Clearly
defined and followed credit
guidelines will minimize the
shopping.

Make sure you provide the
training, techniques, and tools to
help representatives offer
consistent credit terms when
negotiating with customers. Not
only will this minimize
“representative shopping” it will
reduce agent stress and increase
confidence.


Make your Collection Actions More Effective through Risk Modeling
Risk assessment criteria and modeling can help identify the accounts that have a tendency to
pay slowly versus the accounts that don’t pay at all. This makes it possible to send letters or
phone calls to those that will most likely pay versus disconnecting those most likely will not.

Disconnecting all eligible non-pay accounts can be a challenging task for a field services
organization, especially as the economy tightens and customers face higher energy prices.
Strategies to prioritize eligible accounts, based on risk, will ensure that your field forces are
working the accounts that need to be worked.
Prioritizing accounts, based on a statistically valid model, will certainly improve the ability to
manage bad debt.


Make it Easier to Pay
Many utilities have ceased collecting in the field, instead finding ways to make it easier for
customers to pay by phone, especially customers wishing to take care of a disconnect notice.
Many companies accept credit card payments as well as e-checks (bank transfer) over the
phone, web, and IVR.

While EBPP programs continue to be popular, companies are looking towards IVR technology
and kiosks to further expand self-service options. Accepting payment through the IVR was the


©2008 The Ascent Group, Inc.                                                                         4
most often mentioned newest billing or payment option and the most mentioned option under
consideration in our most recent research, Billing and Payment Profiles & Best Practices 2008.
Self-service options are particularly appealing to customers with delinquencies or facing service
termination. No longer do customers have to show up in person at a local office, they can
avoid the embarrassment and inconvenience by paying over the phone, web, or at an approved
pay station. The ability to pay after-hours adds more convenience.

Automation Can Reduce Costs
Within our participant group, only 25 percent of
companies use outbound dialing equipment and
29 percent use IVR technology for outbound
notification. Both of these technologies offer
significant opportunity to reduce collection costs
and improve efficiency. Investigate opportunities
to automate late payment notification and
impending service disconnection notification—
some customers respond better to phone calls
while others to letters.


Improve Recoveries through Customer Segmentation & Behavioral Analysis
Upon account write-off, most companies release accounts to outside collection agencies.
However, some companies segments customers into various credit categories to determine
which accounts will be worked in-house and which will be sent to an agency. To be successful,
companies must understand their customers’ payment behaviors—which customer are likely to
pay in response to a collection letter and which require more aggressive tactics. Segmenting
accounts based on payment behavior can increase the recoveries and save on agency fees.

Many utilities have found that a large portion of their annual uncollectible debt is attributable to
customers with less than six months of active service. Targeting these new accounts earlier
helps to limit uncollectible debt.


Take Advantage of your In-house Knowledge
Another practice that can increase recoveries is the matching of charge-offs to customers
applying for new service. Companies are routinely screening new applicants through a charge-
off depository in an attempt to match existing balances from prior accounts. In most cases, this
can be done while the customer is on the phone with the service specialist. Some companies
have instituted incentive programs to encourage employees to search for charge-offs accounts
at the point of service request. These incentive programs can be very effective as employees
strive to earn the reward for finding and applying charge-offs. Make sure your new service
application process includes a review of bad debt account prior to account acceptance. Finding
the balance at the time of service request give the utility negotiating power, increasing the
likelihood that the balance will be addressed.


©2008 The Ascent Group, Inc.                                                                      5
For more information about our report, Credit & Collection Practices 2008, please visit our
website at http://www.ascentgroup.com.


About The Ascent Group
The Ascent Group, Inc. is a management-consulting firm that specializes in customer service
operations and improvement, performance benchmarking, competitive benchmarking, work
management, and industry research.
Publications:
   •   Credit & Collection Practices
   •   Call Center Strategies
   •   Improving Field Services
   •   Reward & Recognition Program Profiles & Best Practices
   •   Improving Front-line People Processes
   •   Meter Reading Profiles & Best Practices
   •   IVR Improvement Strategies
   •   Billing & Payment Profiles & Best Practices
   •   Call Quality Improvement
   •   Achieving First Call Resolution

The Ascent Group offers other opportunities for your company to participate in benchmarking
and best practice discovery through its online benchmarking services:
   •   Call Center Operations                            •   Remittance Processing
   •   First Call Resolution                             •   Business Office Operations
   •   Call Quality Monitoring                           •   Field Services
   •   IVR Technology                                    •   Meter Reading
   •   Outage Call Handling                              •   Frontline Recruitment, Training
   •   Credit & Collection                               •   Reward & Recognition Program
   •   Billing & Payment Services                        •   New Customer Applications

If you are interested in participating in our research, please contact Christine Kozlosky at
ckk@ascentgroup.com or (888) 749-0001.
The Ascent Group, Inc.
120 River Oak Way
Athens, GA 30605
706-850-0508
w w w . as ce ntgr o up. co m




©2008 The Ascent Group, Inc.                                                                   6

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Balancing Risk and Customer Satisfaction

  • 1. Balancing Risk & Customer Satisfaction Research Summary from Credit & Collection Practices 2008 The current U.S. economic downturn is challenging many consumers, business, and service providers. Americans are finding it more and more difficult to pay for basic purchases, forcing many to choose between the bills they can and cannot pay. As a result, public and private sector companies are seeing a rise in delinquency rates, default, and fraud; many are predicting a 10 to 15 percent increase in uncollectible debt this year. Additionally, inflation and rising gasoline prices are making it more costly for companies to collect. Gasoline prices, as everyone is well aware, have risen drastically in the last year (46 percent), increasing field collection and enforcement costs. The increase in delinquencies and defaults is stressing existing collection workforces, forcing companies to decide between hiring on more staff or finding ways to prioritize the work while limiting risk. As a result, many companies are taking a closer look at their collections process to try to deal with the increased workload and at the same time minimize the impact of the changing economy. Many companies are turning to credit modeling to help manage risk more effectively and identify potential fraud earlier. Additionally, companies are pursuing solutions that will help them to be more proactive in filtering out bad debt without compromising the high level of service that has become standard for many industries. Risk management has evolved into a careful balancing act between customer satisfaction and prudent financial management. In the past, some companies routinely collected deposits from all customers—risk mitigation at the expense of customer satisfaction. Credit scoring and modeling have helped companies better balance risk and satisfaction, objectively identifying the accounts that require a deposit and those that do not. It’s a win-win for companies and customers. Risk modeling can be used throughout the customer’s relationship with the company. Risk analysis can be applied to active accounts, determining the need to send late payment reminders or discontinue service, or even to prioritize callers in queue. It can also be applied to inactive accounts, to determine the most appropriate follow-up based on account payment behaviors, thereby increasing recoveries. By minimizing credit related risk up-front and throughout the account life cycle, managers can reduce operating costs and significantly improve profitability. They can also actively look to expand their service offerings to customers and increase customer satisfaction, secure in the knowledge that doing so will not cost the company and shareholders millions in increased uncollectible funds. ©2008 The Ascent Group, Inc. 1
  • 2. Improving Collection Performance One of the biggest collection hurdles for utilities is the existence of mandatory winter service disconnection restrictions for non-payment customers. Regulatory moratoriums and restrictions limit the collection activity that a company can conduct during a specified time period. A great deal of catch up must be accomplished after the winter moratoriums are lifted. Apart from the mandatory regulations, collections performance appears to be driven to a great extent by company size, with built in advantage occurring within companies with fewer than 100,000 customers. Advantage also appears if a company is located within the South or West, both of which reflect warmer climates. Smaller companies exhibit better collection performance largely due to small town characteristics. The smaller customer base enables collections personnel to become very familiar with customer payment habits, develop personal relationship, and quickly identify payment trends. Companies that do not have the size advantage must work through their systems and procedures to recreate the atmosphere enjoyed by small companies. Systems should be able to stratify collection and payment histories, enabling companies to become “closer” to their customers so they can better match payment options and assistance to those in need. When comparing collections performance, keep in mind the inherent advantages and disadvantages that are enabled by climate, economics, regulatory restrictions, and location. Make sure your credit and collection processes, both the people and technology-driven processes are effective and efficient. Review work tasks, standards, and systems periodically to identify opportunities for improvement, with a keen eye for those customer-facing processes. Benchmarking performance is an effective technique to understand your department’s level of performance and opportunities. Be sure to compare cost and service for a balanced view of performance. You can actively participate in the Ascent Group’s benchmarking services to monitor your credit and collection performance and improvement. Contact Christine Kozlosky at the Ascent Group for more information – www.ascentgroup.com Benchmark Study of Credit & Collection Practices The Ascent Group initiated credit and collection benchmarking research during the second quarter of 2008 to uncover the most effective techniques and strategies for improving collection performance and reducing uncollectibles. The research explored how companies are balancing the cost of collection to reduce uncollectibles and improve the bottom line. Topics investigated included both collection treatment as well as the credit policies that have been established to support collection efforts. We also examined the technologies that have retooled credit and collection processes for maximum effectiveness and efficiency. Twenty-eight companies participated in the research. The following pages summarize the study’s objectives, findings, and recommendations. We also include a list of innovative and winning practices for your consideration. ©2008 The Ascent Group, Inc. 2
  • 3. Study Objectives The main objectives of the study were to evaluate the various tactics and strategies used today to issue credit to customers and collect past due receivables. The study also identified best practices and opportunities for improvement. Secondary objectives included understanding: • Timing of collection actions and the range of approaches used to encourage customers to pay past due balances; • Regulations guiding collection efforts; • The use of technology to reduce costs and improve collection performance. Participants were asked to share management tactics and strategies, as well as identify any improvement in performance. The study also asked companies to include lessons learned, successes, and plans moving forward. Study Findings & Recommendations Our participants included companies from Publishing, Services, Telecom, and Utilities, with the majority of participants from the Utilities industry (88 percent). The majority of study participants were also from the United States (86 percent), however we did have participants from Canada, Philippines, India, and Australia. Study participants serve from 20,000 to 4.5 million customers. As a group, participants average 606,000 customers. Issue Credit Wisely Only thirty-three percent of participants routinely use an external credit bureau to score consumers applying for service—to determine the need for a security deposit. Credit scoring can help companies better balance risk and customer satisfaction—appropriately identifying the accounts that require a deposit and those that do not. Take advantage of this technology, it’s a win-win situation for companies and customers. In addition to traditional Beacon scoring, Equifax offers credit scoring based on utility payment behavior. This energy score is a better predictor of energy customer payment behavior, increasing the likelihood that deposits will be secured for the appropriate accounts. In addition to scoring, many companies are actively participating in industry credit exchanges, such as the National Consumer Telecom & Utilities Exchange. The National Consumer Telecom & Utilities Exchange is a collection of utilities and telecommunications companies that have formed a common “database” of bad debts and new customer sign-ups. Participants are ©2008 The Ascent Group, Inc. 3
  • 4. notified when information is available about a new applicant or uncollectible account. Investigate joining an industry credit exchange to further fine-tune your credit issuance process. Consistency is Key Consistency is key when it comes to collections. Customers will “shop around” for the best terms and arrangements. It is essential to clearly define credit terms and provide tools to help representatives identify and determine the appropriate credit-risk category for callers. Clearly defined and followed credit guidelines will minimize the shopping. Make sure you provide the training, techniques, and tools to help representatives offer consistent credit terms when negotiating with customers. Not only will this minimize “representative shopping” it will reduce agent stress and increase confidence. Make your Collection Actions More Effective through Risk Modeling Risk assessment criteria and modeling can help identify the accounts that have a tendency to pay slowly versus the accounts that don’t pay at all. This makes it possible to send letters or phone calls to those that will most likely pay versus disconnecting those most likely will not. Disconnecting all eligible non-pay accounts can be a challenging task for a field services organization, especially as the economy tightens and customers face higher energy prices. Strategies to prioritize eligible accounts, based on risk, will ensure that your field forces are working the accounts that need to be worked. Prioritizing accounts, based on a statistically valid model, will certainly improve the ability to manage bad debt. Make it Easier to Pay Many utilities have ceased collecting in the field, instead finding ways to make it easier for customers to pay by phone, especially customers wishing to take care of a disconnect notice. Many companies accept credit card payments as well as e-checks (bank transfer) over the phone, web, and IVR. While EBPP programs continue to be popular, companies are looking towards IVR technology and kiosks to further expand self-service options. Accepting payment through the IVR was the ©2008 The Ascent Group, Inc. 4
  • 5. most often mentioned newest billing or payment option and the most mentioned option under consideration in our most recent research, Billing and Payment Profiles & Best Practices 2008. Self-service options are particularly appealing to customers with delinquencies or facing service termination. No longer do customers have to show up in person at a local office, they can avoid the embarrassment and inconvenience by paying over the phone, web, or at an approved pay station. The ability to pay after-hours adds more convenience. Automation Can Reduce Costs Within our participant group, only 25 percent of companies use outbound dialing equipment and 29 percent use IVR technology for outbound notification. Both of these technologies offer significant opportunity to reduce collection costs and improve efficiency. Investigate opportunities to automate late payment notification and impending service disconnection notification— some customers respond better to phone calls while others to letters. Improve Recoveries through Customer Segmentation & Behavioral Analysis Upon account write-off, most companies release accounts to outside collection agencies. However, some companies segments customers into various credit categories to determine which accounts will be worked in-house and which will be sent to an agency. To be successful, companies must understand their customers’ payment behaviors—which customer are likely to pay in response to a collection letter and which require more aggressive tactics. Segmenting accounts based on payment behavior can increase the recoveries and save on agency fees. Many utilities have found that a large portion of their annual uncollectible debt is attributable to customers with less than six months of active service. Targeting these new accounts earlier helps to limit uncollectible debt. Take Advantage of your In-house Knowledge Another practice that can increase recoveries is the matching of charge-offs to customers applying for new service. Companies are routinely screening new applicants through a charge- off depository in an attempt to match existing balances from prior accounts. In most cases, this can be done while the customer is on the phone with the service specialist. Some companies have instituted incentive programs to encourage employees to search for charge-offs accounts at the point of service request. These incentive programs can be very effective as employees strive to earn the reward for finding and applying charge-offs. Make sure your new service application process includes a review of bad debt account prior to account acceptance. Finding the balance at the time of service request give the utility negotiating power, increasing the likelihood that the balance will be addressed. ©2008 The Ascent Group, Inc. 5
  • 6. For more information about our report, Credit & Collection Practices 2008, please visit our website at http://www.ascentgroup.com. About The Ascent Group The Ascent Group, Inc. is a management-consulting firm that specializes in customer service operations and improvement, performance benchmarking, competitive benchmarking, work management, and industry research. Publications: • Credit & Collection Practices • Call Center Strategies • Improving Field Services • Reward & Recognition Program Profiles & Best Practices • Improving Front-line People Processes • Meter Reading Profiles & Best Practices • IVR Improvement Strategies • Billing & Payment Profiles & Best Practices • Call Quality Improvement • Achieving First Call Resolution The Ascent Group offers other opportunities for your company to participate in benchmarking and best practice discovery through its online benchmarking services: • Call Center Operations • Remittance Processing • First Call Resolution • Business Office Operations • Call Quality Monitoring • Field Services • IVR Technology • Meter Reading • Outage Call Handling • Frontline Recruitment, Training • Credit & Collection • Reward & Recognition Program • Billing & Payment Services • New Customer Applications If you are interested in participating in our research, please contact Christine Kozlosky at ckk@ascentgroup.com or (888) 749-0001. The Ascent Group, Inc. 120 River Oak Way Athens, GA 30605 706-850-0508 w w w . as ce ntgr o up. co m ©2008 The Ascent Group, Inc. 6