Opportunity knocks: named liability will improve data quality

The Walker Review's proposal for "named liability" could be a big help to water companies trying to reduce customer debt levels, says John Telford.

As well as reviewing charging and metering in the water sector, the Walker Review seeks to support the water industry in addressing the increasing challenge of customer debt. Of the nine recommendations made by Walker, the key measure is "named liability". This would ensure that a person was identified as responsible for paying a bill at every domestic address to which a service was provided.

Used correctly, this could be a powerful tool. Of particular benefit would be the liability of the owner of a rented property in the absence of a named occupier. This would be the first step in addressing the issue of transient debtors living in rented accommodation which, industry figures suggest, may account for 34 per cent of all debtors. TDX Group analysis shows that you are three times more likely to collect "named" debt than "occupier" debt.

More widely, customer data accuracy would improve, allowing firms to effectively analyse and segment the entire customer base. This is at the heart of establishing an effective debt collection strategy and process. Our analysis shows that a typical large debt portfolio can be broken down into as many as 25 segments. Targeting appropriate debt collection activity at each segment can deliver a 15-30 per cent improvement in revenue collection.

Third party collectors

In particular, it would be easier to see where specialist third parties would be more cost effective than internal teams. In certain circumstances, third parties can provide expertise and scale to work particularly problematic tranches of debt or to provide support where internal collections systems and infrastructure do not have sufficient capacity or capability. For instance, our analysis shows that specialist activity on particularly low debt balance accounts (£10-£50) can double the level of cash collected when compared with non-specific collection methods.

Such comprehensive customer profiling also enables better protection of vulnerable people. Redefining strategy and targeting activity based on an improved understanding will both better identify and protect those who need help, and allow for earlier detection and improved debt ­prevention.

The cost of debt

All of this could help reduce debt collection costs. Outstanding revenue collection operating expenditure accounts for 20 per cent of overall customer services operating expenditure, and has increased by 7 per cent in each of the past two years. With large volumes of debtors owing relatively small balances, water companies need to use smart contact strategies that minimise wasted effort.

Named liability will help reduce the need for trace and collect activity and will assist in linking debt when a customer moves within the same supplier region. This will improve the efficiency of internal collections operations and encourage earlier payment in the collection cycle. It is likely to also help reduce the volume of complaints associated with the collection process, again cutting costs and helping regulatory compliance. It would also get write-offs right down - the value of written off debt could be cut by as much as half.

Customer benefit

Neither is it only the industry that would benefit. Every customer that diligently pays their water bill would save the £11 that is currently added each year to account for the existing debt burden.

However, the industry must realise that named liability is simply a tool with which to address the debt problem. Having the statutory power to establish named liability would only put water companies on a par with other creditors in terms of identifying the customer. It does not put the industry in an advantageous position to collect.

The only water companies that will see a significant improvement in their customer debt levels will be those that have already made significant investments in their collection and recovery infrastructure, and have developed advanced data and analytical capability to support their debt management strategy.

John Telford is director of utilities at debt specialist TDX Group.

Utility Week Consumer Debt Conference - Wed 11 Nov 2009

Tom Walker says feeding back information will improve collections

Customer debt is a major headache for water companies, and in 2008/09 recovery activities cost £76 million. While the Walker and Cave Reviews will go some way to alleviating things, water companies can act now by looking at best practice both within their sector and outside it. Adrian O'Connor Mitchell, managing director of consumer arrears management specialist First Credit Services, urges water companies to take lessons from the financial services sector and to make more use of the data they already have.

Such data includes: how and when they attempt to contact a customer, and the outcome of that contact; the address, age and size of the debt and previous debt history; the type and effectiveness of court actions taken; and the method and frequency of payment. These can be supplemented by other sources such as income, social deprivation data and type of tenure, acquired from third parties where available.

Recovery planning

This data can be used to segment customers into groups with particular profiles. Each group can then be assigned a dedicated recovery plan. This should include: optimal contact times (morning, afternoon, evening); optimal contact methods (telephone, letter, text); appropriate style of contact; and appropriate recovery techniques. Efforts can be focused on debt that is most likely to be recovered economically.

Such segmentation is now present in the water industry. However, central to the financial services industry's practice, but rare in the water sector, is using and improving data in a feedback loop. As O'Connor Mitchell explains: "Crucial to this process is that it is dynamic and self-improving. The outcome of customer contacts not only improves the data on that particular customer, it also contributes to the weighting of the measures themselves. Over time, the system evolves the contact segmentations and strategies to become more effective."

Predictive techniques

Ultimately, such accurate segmentation techniques can be used to predict customers' behaviour. No longer are companies limited to reacting to debt as it arises, they can use historical data to establish which customers have a high potential to fall into arrears, even if they haven't already. Sensible steps can then be taken to mitigate the problem.

Where they are used in the water industry, such techniques have good results. Echo Managed Services' Credit Intelligence solution employs a continuous cycle of improvement common in the finance industry. It has helped one of its users, Bristol and Wessex Billing Services, to achieve some of the highest standards in the industry. Gillian Fletcher, Echo's business development director, explains: "As the results are fed back in, our contact plans get stronger and stronger, while our understanding of customers is extended to predict their behaviour and influence it for the better."

Tom Walker is a research analyst at Indepen.

Comment on this story

Screen name

Email (For verification only. Your details will not be retained or passed on. Not for publication)

Comment

Report Abuse

Sign up to our free email newsletters

1. Anyone in debt should acknowledge the problem and seek to manage their arrears. Failure to do so could result in County Court Judgements, a reduced credit rating, property seizure or bailiff action.
   A debt management company will help indebted customers to draw up a debt management plan. In choosing a debt management company, customers should search the available options, considering reputation, approach, and ability. Good firms have certified credit counsellors who are regulated by the National Foundation for Credit Counselling. Not-for-profit organisations are an option. Any information provided by the customer should be treated as confidential. This is important as there are fraudulent debt management companies operating in the UK. A tell tale sign is if a firm offers to clear bad credit reports – this cannot be done as credit ratings can be improved but previous information cannot be erased.
   For more advice and tips, visit http://www.yesdebtfree.co.uk/debt-management.html.
   

   Debbie Brown | 30 October 2009, 11:05 AM