Are you facing a cash gap in Smart prepayment?

Energy’s customer debt problems are projected to worsen this winter. The Price Cap is falling, but market debt levels are still on the rise, meaning suppliers should be prepared for further press scrutiny and regulatory attention, as they look to support customers with paying their bills.

Previously, prepayment meters were seen by suppliers as a favourable option amongst economic uncertainty – but the landscape is changing, driven by a large political and regulatory focus on the topic.

On the whole, Smart metering has been welcomed by suppliers. However, as we’ll cover in this blog, there are growing problems in Smart PAYGO, where challenges with technology, process, and customer behaviour are leaving suppliers financially exposed.

What’s the appeal of Smart PAYGO?

For a long-time, Smart prepayment was seen by the industry as a solution to its debt woes. The ability to switch customers from credit to prepayment mode, without the need for physical access to the property, made the option much easier to enact. Contrary to the narrative in today’s media, some customers also preferred the flexibility of being in prepayment mode, as a means of managing their spend in challenging circumstances.

As the cost of living crisis continued to create economic uncertainty, many suppliers rebranded Smart prepayment as a Pay As You Go option, looking to remove stigma and mirror the popular mobile phone tariffs. However, the external scrutiny hasn’t gone away, and we can expect this to continue in line with rising debt levels.

When deployed fairly, Smart PAYGO enables numerous benefits, including reduced cost to serve, better control of debt, easier customer interactions, and an ability to self-serve. But for these benefits to be realised, the Smart meter must be functioning as intended, with support from optimised business processes and controls. This may sound self-explanatory, but the industry still faces significant gaps in its understanding of this requirement, failing to see the severity of the implications when meters are installed and managed incorrectly.

Meters being left in credit mode

Typically, issues can arise when replacing a traditional credit prepayment meter with a Smart model. When installed in credit mode, the meter needs to establish comms for the mode switch to occur. Should this fail, the prepayment meter, which was once credit controlled, can be left running in a free vend credit state – meaning customers can effectively use energy at no cost.

Fixing this retrospectively can be challenging. Customers will need to grant access to the meter again to enable the fix, which many will be unwilling to do. Business process and controls may also not be ready for this scenario. As a supplier, do you have the have alarms, checks, and balances in place to trigger the necessary corrective action? How will you deal with an instance of refused access from the customer? Some suppliers may decide to react with a warrant, or by permanently moving the customer to their credit portfolio.

Further operational issues could also arise. Poor data quality can prevent the meter being recognised and the mode switching, or customers may switch but be left unable to top up, resulting in a need for costly emergency site visits. On top of this, changes in the price of energy set by Ofgem may not be reflected in the meter, leaving the customer vending at the old rate.

All of this can lead to complaints, contact, and work around processes - creating extra effort for the supplier and the customer, far removed from the service and experience that both expect.

Understanding the financial impact

Alongside the delivery of a frustrating and inconsistent experience, the financial implications of Smart PAYGO issues can be substantial, for both the supplier and the customer.

Large discrepancies can emerge between expected and actual cash collected, while a lack of meter reads will also leave suppliers unsure about what’s happening on site. Is the customer still present and consuming, or have they left or decided to cut back on their usage?

When the issue is eventually resolved, the financial impacts will crystalise. Back billing will likely apply for any debt owed that is more than 12 months old, and collectable debt will need to be calculated and loaded to the meter.

Depending how long it’s taken to identify and resolve the issue, there could be a large debt to collect. As we covered in our previous article on prepayment, the average repayment length for an energy debt is ~10 years, and an unexpected surge in this balance will only heighten the difficulties faced by customers.

How can we help?

At BFY, we have the real-world experience to help you fix these problems. Our Operations and Service experts have supported large suppliers with Smart PAYGO challenges for a number of years, building a detailed understanding of the process, system, and performance issues that drive a Smart prepayment cash gap.

To address these challenges, suppliers need a clear insight into the interactions between its business processes and third-party agents, and how this is influencing the outcomes delivered during Smart prepayment installations. BFY provides a diagnostic to help identify any underlying issues at pace, informing solutions that are proven to transform performance.

To find out more about how we can help, contact Jon Vincent.