Managing Payment-Troubled Customers in Hard Times
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Breaking the vicious cycle of delinquency so that you can proactively manage your payment-troubled utility customers to be regular good-paying utility customers
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Managing Payment-Troubled Customers in Hard Times
- 1. www.esource.com Managing Payment- Troubled Customers in Hard Times Sarah Fiebiger Senior Analyst, Market Research Services @ESourceSarah May 26, 2010 Wednesday, May 26, 2010
- 2. www.esource.com || © 2010 E SOURCE 3 Steps to Success 1.Identify 2.Segment 3.Manage 2 Courtesy: iStock
- 3. www.esource.com || © 2010 E SOURCE3 © E Source The Changing Face of Delinquency Typical delinquent customer demographics Single Low income Renter Urban New delinquent customer demographics Single Married Low income Middle income Renter Home- owner Urban Rural Suburban
- 4. www.esource.com || © 2010 E SOURCE4 4 Primary Groups Struggling to Pay Payment- Troubled Customers Overextended customers Careless payers Single- income families No- income households Behavioral Economic
- 5. www.esource.com || © 2010 E SOURCE 3 Steps to Success 1.Identify 2.Segment 3.Manage 5 Courtesy: iStock
- 6. www.esource.com || © 2010 E SOURCE 3 Ways to Segment by Risk Level 6 Technique Accuracy Level Behavioral Scoring Industry-specific information exchange National credit bureau scores High Medium Low
- 7. www.esource.com || © 2010 E SOURCE7 Target Customers with Effective Collections Treatments Save aggressive treatments for high-risk customers Increased type / frequency of late payment notices Accelerate to disconnect as fast as possible Be more lenient on low-risk customers Could be a one-time thing Could be a self-corrector Courtesy: iStock
- 8. www.esource.com || © 2010 E SOURCE8 Distribution of Risky Customers National Grid U.S.A. Lowest risk customers 80% will pay on their own with a “nudge” 20% need more than a “nudge” before they’ll pay Highest risk customers 20% will pay given the right collection treatment is used 80% will not pay Low risk Medium risk High risk 60% No action or automated call 30% Manned call or termination notice 10% Termination notice or disconnect
- 9. www.esource.com || © 2010 E SOURCE9 Orlando Utilities Commission & Allegheny Power – In-house Risk Segmenting Allegheny Power 5 risk categories 10, 20, 30, 40, 50 (lowest to highest) Lower-score customers might be excluded from certain collections treatments Frees up field personnel to concentrate on higher- risk customers Orlando Utilities Commission 4 risk categories A, B, C, U (lowest to highest) Determines type & frequency of reminders Increased frequency & number of reminders for higher-risk U-rated might get cut off sooner than an A-rated
- 10. www.esource.com || © 2010 E SOURCE 3 Steps to Success 1.Identify 2.Segment 3.Manage 10 Courtesy: iStock
- 11. www.esource.com || © 2010 E SOURCE11 Robust Set of Billing & Payment Options Courtesy: iStock Auto Pay EFT Bank Draft Braille Billing Credit Card Debit Card Check IVR Web Cash Kiosks Prepay Budget Bill Fixed Bill Mail
- 12. www.esource.com || © 2010 E SOURCE12 Clear Credit & Collections Policies Delinquencies can increase dramatically if policies are missing, unclear, or ignored by employees Communicate clearly to customers Follow-through Train employees on correct policy procedure Track for employee compliance Courtesy: iStock
- 13. www.esource.com || © 2010 E SOURCE13 Consistent Messaging Chesterfield Utilities Consistent messaging across all channels Everyone with utility uses same short script Consistent with messaging on door tags Key to success Bad debt write offs down 82% Disconnections for non-payment down 30% Drop-box payments up 25% In-person payments up 50% Courtesy: iStock
- 14. www.esource.com || © 2010 E SOURCE14 Assistance for All Income Levels Level 1 text in black, always with a bullet if there are no lower-level bulleted items Level 1 text in black Level 1 text in black No first bullet, Level 1 Level 2 bullet in blue Level 2 bullet in blue No first bullet, Level 1 Level 2 bullet in blue Level 2 bullet in blue Level 3 bullet in grey Level 3 bullet in grey Level 2 bullet in blue Great Example: DTE Energy For all customers United Way 211 Credit counseling Double-notice protection plan Medical emergencies; and more For low-income customers only Case management Earned income credit Low-income weatherization THAW; and more Source: http://www.dteenergy.com/residentialCustomers/billingPayment/paymentPrograms/payAssistance.html Courtesy: iStock
- 15. www.esource.com || © 2010 E SOURCE15 Improving Relationships Tacoma Public Utilities Strengthened relationship with collection agency Quarterly meetings Collaborative effort Made it easier to do business with TPU Made auto pay available Pay plans available 24/7 24/7 kiosks throughout community Walk-in office $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 Year 2007 Totals YTD 2008 40% Net Increase in Collections
- 16. www.esource.com || © 2010 E SOURCE16 Committed to Company-Wide Effort PECO Energy Customer Commitment & Bad Debt Improvement Team established All departments involved Aggressive goals set Collect from 47,000 delinquent customers in 3 months Result Yielded $5 million in revenue
- 17. www.esource.com || © 2010 E SOURCE17 For More Information Sarah Fiebiger Senior Analyst, Market Research Services 303-345-9126 sarah_fiebiger@esource.com
Editor's Notes
- First you want to identify who your payment-troubled customers are, because as I mentioned before, the landscape has changed and you want to make sure you’re targeting all customer groups that are exhibiting delinquency. Second you want to segment your payment-troubled customers by risk level so that you can identify the right collections treatment for the right customer that is going to be the most effective. Third you want to proactively manage your payment-troubled customers to help them break the vicious cycle of delinquency so that they can hopefully become a regular good-paying customer.
- It used to be that we primarily saw delinquencies from customers who are single, low-income, renters, and/or that live in urban areas. BUT, since the recession we are now also seeing delinquency from customers who are married, middle income, homeowners, and/or that live in rural and suburban areas. These customers don’t all require the same collections approach so it’s beneficial to make a distinction between customers who are struggling to pay for behavioral reasons and those struggling to pay for economic reasons so you can gain different insights on how to approach the problem.
- Around 1/3 of your payment-troubled customers are what we like to call “careless payers.” These people do have the money to pay their bill; they just haven’t for some reason. They might forget to pay or they might just lack the budgeting and organizational skills needed to pay regularly and on time. You also have overextended customers. These customers might have a decent income, but they have become delinquent because they have taken on so much debt that they simply can’t meet the minimum payments for all of their debt obligations each month. These are behavioral issues that can be managed through programs that promote behavior change. While some customers are delinquent for economic reasons and may require monetary assistance, payment plans, and or special rates to help them out. Many of these customers fall into the single-income family group where the one income might be fairly decent, but when it’s meant to be supporting a large family it might not be enough. And with unemployment having been on the rise in the last couple years there has been a growing number of no-income households. Some of these customers might have never had payment troubles before so they might not even know that payment assistance is available let alone how to get it.
- It’s important to know who your delinquent customers are before moving to the next step of segmenting by risk level. Many risk segmentation models take demographic factors into consideration and if you have a model that is still giving positive credit to customers who are homeowners, for instance, than you are not accurately predicting customer risk.
- There are three ways to segment customers by risk level. The first is to use credit scores obtained by one of the three national credit bureaus such as Experian. This is going to be your least accurate method for predicting customer risk. That is because only around 1/3 of utilities report any trade activity to the bureaus and most of them only report customers that have gone to write-off. This means the bureaus don’t have much data for the utility industry. So for utility credit scores the bureaus have to rely heavily on proxy data from similar industries like telecom. While this has been shown to be accurate for some customers, it can be wildly off for others. That doesn’t mean it’s a bad method—it does work. Especially for assessing security deposits. A utility mentioned in an Ascent Group report had only been requiring security deposits from renters and customer in mobile homes, and when they changed to credit scores they saw a decrease in write-offs. Some utilities have chosen to join an industry-specific information exchange such as the National Consumer Telecom and Utilities Exchange. Exchanges have companies from similar industries pool data on new customer sign ups and write-offs. Using data from such an exchange is going to be slightly more accurate because you are basing risk off of payment behaviors exhibited within the utility industry. The most accurate method for predicting customer risk is behavioral scoring. These models take a customer’s actual payment history from a particular utility to predict that customer’s payment behavior at that specific utility. Sometimes these models will also take other customer information into consideration. That’s why it is the most accurate, because it’s close to home.
- The point is definitely to collect as much money as possible, but there’s no point in spending money to make money if you don’t have to. Save the costly aggressive treatments only for your highest risk customers and be more lenient on your low-risk customers. Low-risk customers might just be exhibiting a one-time delinquency or they might be a self-corrector—someone on a delinquency budget that regularly pays their bills every three months including the late fee. So let them and don’t waste your resources on them.
- --Improved collections timeline by 37 days --Stays within regulatory guidelines for timeline --Outsourced to Experian
- You don’t need a big budget to start segmenting customers by risk. You don’t even need a vendor. Without getting into too many details, here are two examples of utilities that have developed their own risk-segmentation models in-house. They break customers into 4 to 5 risk categories to help determine what level of collections treatments a given customer will receive. Giving less treatments to low-risk customers frees up field personnel to concentrate on the highest-risk customers.
- Now you’re ready to start proactively managing customers to help them break the cycle of delinquency and become the good-paying customers you so desire.
- You have a variety of different customers with a variety of different behaviors, payment patterns, and economic situations so you want to have a robust set of billing and payment options to appeal to them all. Customers are probably more likely to pay if they have billing and payment options available to them that are the most convenient and easy for them. Credit cards might not be recommended for some customers, but it can get them to pay so that can be a good option. And auto pay is an excellent option for your careless payers because it’s set it and forget it. And prepay is great for customers on tight budgets because it helps them have more control and gives them more visibility into what their usage really costs.
- Colorado Springs Utilities --customer cannot qualify for payment plans if they have broken two or more previous arrangements --tracks accounts that have been on two or more payment plans --check to see if anyone at utility has gone outside of policies --train employees on correct policies procedures Of course, delinquencies are not just the fault of the customer, they can be the utility’s fault as well so you want to make sure and focus on both sides of the equation. Delinquencies can increase dramatically if a utility has policies that are missing, unclear, or straight up not followed by the utility’s employees. For instance, if you have a policy that states a customer can’t qualify for a payment plan if they’ve broken to or more previous arrangements you want to make sure this is first communicated clearly to the customer. Then you want to follow through and make sure customers with three or more broken arrangements have not been put on a payment plan. And if you find that an employee put a person with three broken arrangements on a payment plan then you want to go back and train that employee on the correct policy and go back and make sure that your policy and processes are clear, and rewrite them if necessary.
- You can even see success from simply having consistent messaging. Chesterfield Utilities implemented consistent messaging across all channels. So whether a customer spoke to a CSR, a walk-in payment office clerk, or field service personnel, they would hear the same short script. And that messaging was also consistent with the messaging left on door tags. From this simple act Chesterfield Utilities saw bad debt write-offs go down 82%, disconnections for non-payment go down 30%, drop-box payments go up 25%, and in-person payments go up 50%.
- And make sure to offer assistance for all income levels. DTE Energy is a great example of a utility that offers assistance for all customers as well as low-income. For example they offer credit counseling for all customers, and direct them to United Way 211, which customers can call for information on payment assistance and a variety of other matters.
- TPU maintains ownership of all debt 23/77% split on all $s collected Pay plans 24/7 thru IVR & web As you can see on this graph here, Tacoma Public Utilities was able to increase collections by 40% in a one year period of time. They strengthened their relationship with their collection agency by keeping in regular contact and taking a collaborative approach to collections where either the utility or the collection agency can collect on an account and they split the money regardless of which party collects. Tacoma also made it easier to do business with them by offering additional payment options to help customers pay. See—offering more payment options pays out.
- Dedicated staff raised from 70 to 150 Departments involved: Supply, Safety, Fleet, Training, It, Facilities, Gas, Operations Terminations increased 17% Call volume increased 17% Goal to collect from September to Dec. 1 when moratorium starts Results as of early Nov: -22,000 disconnects -14,500 restorations, 12,000 w/ payment -7,000 paid in full -5,000 partial payments with agreements -2,500 granted medical certificates In the same way that utilities will often marshall their resources for a storm response, PECO Energy does the same for collections before the winter moratorium hits. Employees from across a variety of departments all get together in the 3 months before moratorium hits and work to get as many customers paid off, on payment plans and reconnected before the Moratorium. Their efforts were successful and PECO was able to bring in $5 million in revenue that mostly would have continued to grow in the uncollectibles pot until winter was over.