Making of a successful debt collector
Changes to the management of energy industry accounts receivable, in conjunction with a transition toward new revenue sources and distribution, present new opportunities for forward-thinking utility companies.
The potential revenue sources includes renewable energy models, RenTech and an approaching wave of e-vehicles that will start breaking shore over the next few years. Simultaneously, distribution changes such as off-the-grid living and self-powered communities can also be leveraged into growth as producing consumers (i.e. prosumers) look to energy companies for distribution and management services.
In this third and final part of the series, the collection optimization solutions introduced in part two (key performance indicators and documentations) continue with solutions involving strategic predictive analytics, segmentation and the application of payment responsiveness to low- and high-risk consumers. See part one for ways to improve consumer relations.
Collection Optimization Solutions
Business intelligence platforms (core programs and add-on applications) provide a framework for establishing an analytical process that optimizes utility industry collections. This technology gives collection managers the framework to create collection optimization solutions that become whole after being populated with big data.
The next stop on the road to success is making sense of the metrics in terms of key performance indicators (KPI) to generate and monitor revenue cycle efficiency in conjunction with an analytical system that can be leveraged into solutions for energy industry accounts receivable.
Strategic Predictive Analytics
As the most advanced rendition of account analysis to date, strategic predictive analytics provide a multifaceted approach to identify risks and opportunities while forecasting the likelihood of future customer behavior such as delinquency or retention.
The pre-digital era version of predicting customer behavior (aka “the expert method”) consisted of experienced collection managers developing solutions for delinquent accounts based on their own judgement and basic data such as payment history and credit scores.
The expert method was eventually replaced by traditional predictive analytics, a more advance approach utilizing multiple data points, statistical analysis, text analytics, optimization, real-time scoring and other techniques that help collection managers create accurate predictive models about future customer behavior. This approach became a critical component of energy industry accounts receivable after regulators determined that fuel and electrical power are considered basic necessities by law.
The latest model — strategic predictive analytics — uses the data processing, statistical analysis and scoring of traditional predictive analytics with a greater number of advanced algorithms, debt scores and risk scores. Factors such as cost-benefit analysis; strategy simulations, sampling and assessment; predictive modeling and monitoring; and robust reporting systems help prioritize collection activities and generate precise segmentations.
If the simulation models are correct, then collection strategies are applied to the appropriate account segments to generate a customized treatment of individual customers.
This approach is more efficient and cost effective than traditional predictive analytics because it directs collection efforts toward the correct debtors at the right time using the most effective communication strategies for the greatest return on investment. Furthermore, strategic predictive analytics are enhanced by business intelligence platforms to sort and prioritize accounts based on real-time data, and finally, to predict which accounts are more or less likely to self-heal, pay within a particular time period, or need further escalation.
Segmentation
Contemporary managers of energy industry accounts receivable understand the value for having multiple collection strategies to address the needs of customers within particular segments. These tactics can reduce collection costs and are less likely to draw the attention of government regulators. They can also improve the public image of utility companies and create customer retention in an energy market offering a greater number of consumer choices.
A research study called “Credit and Collection Strategies in a Competitive Electric Utility Industry” defined the key segments of non-payers, partial payers or late payers:
- Customers who do not pay because their expenses consistently surpass their income.
- Customers who can generally pay, but have difficulty if faced with unexpected expenses.
- Customers who have given up paying their bills after falling behind — they can pay current charges or past-due amounts, but not both.
- Customers who have become poor after facing significant life changes such as divorce, unemployment, or retirement; or have become poor due to illness.
- Customers with external problems such as language barriers, mental illness or without the ability to contact their utility company or social services for assistance.
- Customers with adequate financial resources, but have significant overall debt.
- Customers with the ability to pay, but refuse because they are not facing financial consequences for non-payment; or simply dislike large institutions.
Payment Responsiveness
It is widely accepted that early intervention is the most effective approach to reconciling past due accounts in energy industry accounts receivable. Approaching delinquent consumers early in the revenue cycle allows them to avoid large, unmanageable balances arising from the accumulation of unpaid monthly charges in conjunction with mounting late fees and penalties.
The optimized payment solutions stated in part one of this series (detailed monthly statements, multiple payment channels, options for automatic billing, etc.) introduce the concept of consumer-centric relations that can be underlined with late-payment strategies addressing the needs of non-paying segments.
Naturally, low-risk customers with longstanding patterns of on-time payments should be extended lenient early delinquency policies such as reminder letters and phone calls.
On the other hand, high-risk customers represented by the above segments should receive immediate attention with increased escalation over time: reminder letters and phone calls, inserts and referral to energy assistance resources, past-due notices, delinquency letters, termination notices, and if all else fails, assignment to collection departments or external agencies.
For example, consumers in groups 2 – 5 would benefit from energy or medical assistance programs, credit counseling referrals, or customized repayment plans to address their needs.
Finally, this entire process is dependent upon a well-informed public and properly trained customer service agents who represent the front lines of energy industry accounts receivable. Consumers will be educated over time with effective public service announcements and inserts included in monthly statements. A continued dialogue between energy companies and consumers generates delinquency prevention, and ultimately, a favorable return on investment.
What’s Next for Energy Industry Accounts Receivable?
The current economic climate has two personas: some experts see trends as formidable beasts ready to pulverize energy companies while others view the same parameters as opportunity for growth. The S&P Global Ratings see both sides in “Industry Top Trends 2018 North American Regulated Utilities”:
“Rating trends across regulated utilities in North America remain mostly stable … Margins across the industry in North America are expected to be flat to improving slightly as operating conditions and favorable fuel cost trends are maintained … We project continued regulatory support for utility earnings and cash flow … Electric generation transformation is ongoing as carbon concerns and other environmental considerations lead utilities to change the mix of fuel sources. … Grid transformation is becoming more prominent as utilities react to technological advances and other disruptive forces … However, the industry as a whole is well positioned to withstand mild shocks, and we see steady growth and stable credit quality overall.”
Meanwhile, other experts like Perry Stoneman give reason to believe all of these factors will form the foundation of new business models: the energy industry will learn to peacefully coexist with RenTech and even integrate with it; self-powering communities present new opportunities for distribution and service; battery innovation and artificial intelligence will be game changers; and utilities will transform operations into profitable, community-minded organizations with the help of technology.
When energy companies turn to collection agencies, they are advised to seek firms built upon similar foundations as described above: industry experience, regulatory compliance, certification, data security and collections technology.
Contact Optio Solutions to learn about its best-in-class foundation and individualized collection strategies for the energy industry that deliver a favorable return on investment, brand protection and customer retention.
Related posts
