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6 Ways to Build a Strong Debt Management & Risk Framework

Why effective debt management should be front and center for every water utility executive.
Sept. 13, 2022
6 min read

Though debt collection is an important part of all businesses, it is seldom at the forefront of utility leaders’ minds. Debt recovery strategies tend to be reactive, and water executives are keener to focus on innovations and on prioritizing more future-ready technology trends in customer experience and digital transformation.

But with a changing economy, unpredictable world events and the continued effects of the COVID-19 pandemic, effective debt management practices should be front and center for every water utility executive.

Water utilities may, however, face many barriers when it comes to collections. Whether limited by government and consumer protection regulations or a lack of resources and investment, gaining control over this key area of business can prove challenging for many, but it is also one of the most critical areas for business resilience.

Debt management is incredibly complex, and while there is no one-size fits all framework to follow, there are steps that can be extremely helpful in building a stronger process. Below are six strategies to help utilities take control of the debt management and collection process, even when an economic downturn is looming.

1. Utilize Data to Fully Understand the Customer

Good customer data can help to prevent bad debt so utilizing predictive analytics and leveraging existing internal information along with externally sourced data is a good place to start.

Data-driven analytics from a provider like Equifax, for example, can help utilities segment customer data to prioritize high-risk customers for closer monitoring and management. These reports can indicate when a customer is unable to pay any provider at a given time. An effective credit-scoring model is also essential to help with predicting delinquent accounts.

When it comes to segmentation, do not split the data too far: going into overly granular detail can overcomplicate the process. Use broad parameters to establish specific processes for the ‘type’ of customer in a particular group such as those with a lower income that may experience frequent issues with making payments, or customers with funds available that simply choose not to make payments either to you or other suppliers.

Further demographic segmentation within each group can offer insight into the type of communication and engagement that will be needed. For example, elderly customers are unlikely to be technically savvy or respond to text messages.

2. Watch for Early Indicators

With a powerful credit-risk strategy in place, you will be able to watch for pre-delinquency signs and to identify early signals that there may be trouble ahead before a customer starts missing payments.

For example, a customer that makes regular billing inquiries or often questions or disputes specific amounts and charges is more likely to have issues paying on time. At risk customers require a gentler approach, with more prompts to pay, and more support made available to them.

If it is clear that someone has the money but is just not paying, messaging would go straight to payment request and move through the process to debt collection more quickly.

3. Have a Dedicated Debt Collection Team

The absence of a dedicated or fully-staffed debt-collection/credit and risk management team can be particularly harmful.

Build a customer care team to deal with the most complex cases. Bring on skilled agents trained to engage with customers rather than agents who use only standard collection techniques. Take customers through the journey according to their needs or limitations.

Some accounts, for example, might have an additional care flag, meaning the account is checked regularly to prompt engagement with the customer if there have been any changes in routines or to remind them that a bill is on its way etc.

4. Offer Flexibility to Customers

Flexibility is the key in terms of enrollment, payment plans and communication. Avoid complicated enrollment processes and attempt to simplify all customer interactions while offering multiple digital channels for customer interactions.

Allow for additional provisions and protection for low-income and vulnerable groups such as extended grace periods, breathing space or payment breaks, token payments, micro payments, partial write-off, and pay as you go plans. Meter reading and billing flexibility that allows the customer to decide when and how often their meter is read and when they are billed has proven successful for many customers.

5. Offer Multiple Payment Methods

Encourage customers to pay using a secured payment method such as a direct debit from their bank. Most of these customers pay without any issues so it is wise to work towards increasing the use of these methods and to use every opportunity to encourage customers to move over.

Offer installment plans if customers feel that a one off, annual payment is too much to handle. Look at how payments are made and how they are being managed. Use a variety of channels to raise awareness of different methods to pay such as text messages including quick links to payment platforms or information about using them.

Make it easy to make a payment and to ensure that there is a variety of ways to pay. Use bills and envelopes to carry messages about help and support that is available to them as well as ways to pay and how to contact you. Often customers are able to recognize an envelope as a bill and will not open it. Messaging on the envelope itself helps remove that barrier.

6. Community Outreach/Engagement Strategy

Set up a community team that works with other local advocate groups, agencies and charities that can help get messages out to local communities and share information for how to pay, how to contact you and what kind of support is available. Often customers fail to pay because of poor health or unemployment and many advocacy groups can offer home visits to the most vulnerable and even provide financial assistance to help those in need.

Remember that receiving a payment of any amount is better than receiving nothing. Offer a payment plan before proceeding to collections. Setting up a payment plan and maintaining regular contact is vital.

Today, water utilities have more access to data, technology and tools than ever before. An efficient debt management framework requires an end-to-end holistic credit and collections strategy and modern cloud-based technology that enables flexibility and control.

With an agile and highly configurable customer information platform, utilities have tremendous opportunities to build personalized debt recovery strategies tailored to individual customers and their needs and to inform data-driven collections strategies. Through predictive analytics, automation and a proactive customer engagement approach, water utilities can improve their ability to predict risk and to prevent bad debt while reducing service costs and improving customer satisfaction and loyalty.

​​Author information: Rachael Merrell is director of customer services for Echo Managed Services, the creators of Aptumo. Merrell can be reached at [email protected].

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