Published in 1995, the information presented in a study about non-paying utility customers, “Credit and Collection Strategies in a Competitive Electric Utility Industry,” remains as relevant today as it was 23 years ago.
Addressing nonpayment problems within the energy industry requires a clear analysis of non-paying utility customers. There is no one type of utility nonpayer, and treating each one with a default strategy runs the risk of increasing a utility’s expenses and decreasing its revenue. Thus, applying separate strategies for different types of utility nonpayers is vital to successful collection, improving the image of utility companies, and growing customer retention.
Types of Non-Paying Utility Customers
According to the study, consumers unable to pay their utility bill can be segmented into eight different categories:
1. Very Poor
The first type of non-paying utility customer is one the reader might initially associate with past due accounts. These are consumers whose incomes do not match their basic living expenses. Cut and dry, they can’t afford to pay expenditures such as monthly utility bills. Budget counseling and deferred payment will be of little help to them.
2. Brink of Broke
Consumers “on the brink of broke” are very similar to group number one in that they live on the edge of economic viability. They can make do with standard month-to-month expenses, but any costly problem (car repair, appliance repair, medical bills) is liable to disrupt their quality of life and force them behind on their bills.
3. Bad Budgeters
Customers who can only pay their monthly expenses with careful budgeting — and don’t budget very well — are “bad budgeters”. This group is defined by having the desire and resources to pay, but lacking the necessary awareness of how to stay on top of their expenses. Budget counseling will likely go a long way with these non-paying utility customers.
4. Badly Behind
“Badly behind” customers account for individuals so far behind on their bills that they simply choose to neglect the problem all together. They may have the funds to pay their most recent utility statement, but lack the necessary funds to pay all past-due bills. These customers reason there is little difference between owing $500 and $565 and prefer to let the balance due add up.
5. Change in Lifestyle
Consumers who experienced a change in lifestyle are oftentimes not accustomed to managing their finances on a lesser income and unaware of any public benefits available to them. Typical occupants of this group include divorcees, widowers, retirees, and the recently unemployed.
6. Otherwise Incapacitated
Those “otherwise incapacitated” include customers who struggle to pay their utility bill due to being functionally illiterate, linguistically isolated, or physically or mentally impaired. One large group of those otherwise incapacitated include those without telephone service.
7. Poor Money Managers
“Poor money managers” are consumers who simply do not manage their money well enough to pay their utility bill reliably. They are distinguished from group three in that their income is not marginal as compared to their basic living expenses. Their poor management of funds may be evidenced by high consumer debt and large credit card balances which do not allow them to comfortably make their month-to-month payments.
8. Defiant Debtors
Finally, there are non-paying utility customers who are able to pay but do not. Within this group there are two subgroups, shrewd financial managers and those with an “attitude problem”. Shrewd financial managers are debtors aware of which utility bills lack consequences for not paying. Those with an attitude problem, however, simply refuse to pay based on their own principles or perhaps a prior disagreement with the company.
As this list indicates, there is no one type of non-paying utility customer. Narrowing down what reasons a debtor has for being behind on their payments can be crucial to successfully collecting from them.
Customer groups 2 – 6, for instance, all suffer to some extent from a lack of funds. Knowing this, it may be wise to counsel them to pursue custom repayment plans or energy or medical assistance programs.
Groups 2 and 3 specifically may benefit from Budget Billing such as programs offered via PG&E. While the consumers in these groups may be able to pay their average utility bill, they’ll have trouble paying their high winter heating bills. With some budgeting assistance they will have the ability to pay.
Those with enough money such as groups 7 and 8 may require a firmer, more uncompromising tact. This is best addressed at the operations level with receivables management software and strategic predictive analytics.
Strategic predictive analytics uses data processing, statistical analysis and scoring, advanced algorithms, debt scores and risk scores in conjunction with factors such as cost-benefit analysis, strategy simulations, sampling and assessment, predictive modeling and monitoring, and robust reporting systems to 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 large segments or individual utility customers.
The Optio Solution
Optio Solutions is dedicated to collecting on all types of consumers courteously and pragmatically. We pride ourselves on receiving positive responses from consumers and collecting on a significant number of past due accounts.
Optio’s strategy for addressing non-paying utility customers is based on a foundation of compliance, certification, data security, collections technology and more. Optio is one of only 57 agencies worldwide to have received PPMS certification from ACA International.
Contact us today for a free consultation to learn how Optio can work for you.