Collections in Water – Exceeding Ofwat’s expected outcomes

Water customers have seen their cost-of-living challenges amplified throughout Q1-24.

It’s a concerning narrative largely driven by April’s expected bill increase, stats showing more customers are unable to pay, and most recently, the joint debt collection statement shared by the UK Regulators’ Network (UKRN) – in which Ofwat is prominent.

Their message to suppliers is clear. Collections activity must be supportive, not harmful, and drive positive engagement where possible.

Our latest update reflects on this guidance, sharing insight from our recent engagements with Water clients. It should help you to operationalise the regulatory message, driving a supportive collections practice focussed on harm prevention, powered by data and analytics.

What is Ofwat expecting from Water suppliers?

The risk of customer harm is made abundantly clear in the UKRN’s statement. It outlines how excessive collections communications are leaving some customers overwhelmed, considering the likelihood of receiving simultaneous communications from elsewhere, which has a negative impact on physical and mental health.

Intimidating language, and its adverse impact on customer engagement, is also highlighted as a concern – reducing the probability of both repayment, and the customer seeking debt advice.

Instead, Ofwat and the UKRN expect suppliers to:

• Strive for positive customer engagement, through appropriately timed collections communications, which are proactive to a customer's financial status
• Deliver collections communications with a supportive tone of voice, tailored to the individual circumstances of the customer

In our client engagements, identifying vulnerable and ‘ability to pay’ customers has been prevalent, underpinned by the capability to categorise personas, and design customer-specific strategies.

A single universal debt journey (with minor contraction for high-risk accounts) has limited effectiveness for debt collection, customer responsiveness, and harm prevention. To build a best in class collections function, it’s critical to utilise available data for segmenting your customer base, informing customer treatments, and developing existing processes.

Becoming best in class with proactive support

Data modelling to drive timely communications

Enriching internal information with externally available data (e.g., bureau datasets) can provide customer portfolio analytics and data intelligence, offering an advantage when tailoring your solutions to customers.

A data-driven view can provide early warning signs of deterioration, and demonstrate patterns in payment habits allowing for proactive debt prevention. For example, using predictive data models to inform pre-delinquency activity is, by its nature, focused on prevention over cure, and will maximise the value of behavioural data in the business if done correctly.

Additionally, leveraging available customer call data, particularly when it comes to understanding customers’ ability to pay, can inform tailored strategies for better serving customers, whilst safeguarding their financial health.

Predicting delinquency with machine learning

Contacting customers ahead of delinquency can assist with financial planning, offering reminders that foster positive engagement and support retention.

During a recent engagement with a large Energy retailer, we utilised machine learning to help their debt team strategically use customer data, establishing a predictive model of customer delinquency. Accompanied with a scorecard for monitoring customer circumstances, the supplier could leverage this insight to proactively engage with customers, and take pre-emptive action to support those facing potential financial difficulty.

This initiative was delivered as part of a wider debt management programme, which helped our client to reduce Bad Debt Charge by £4.5m overall.

Tailoring conversations around ability to pay

Is your debt operation equipped to support challenging conversations, surrounding affordability and ability to pay?

Quick actions like delegations of authority, and control mechanisms (e.g. ability to reduce a DD by 10%) allowing agents to realise positive outcomes and reduce handoffs, can have an instantaneous impact for both customers and advisors.

Additionally, developing an ability to pay assessment and scoring mechanism can provide a curated measure across the portfolio, with defined dunning actions to help inform agents on their interactions (inbound, outbound or non-voice), and tailor the conversation to best suit customer needs.

Where this doesn’t go far enough for a customer, you may need to consider additional tools and technologies, such as online income and expenditure platforms that provide a more detailed assessment of the customer.

Using data to inform customer treatments

One dimensional collection journeys are no longer fit for purpose, with Ofwat previously stating companies must “identify and meet all needs”, through clear communications which are more likely to benefit the customer.

Enhanced customer data can support in identifying “can’t pay” and “won’t pay” customers. These customer lenses can help to better understand behaviours, ensuring customer treatments have clearly specified objectives, a defined tone of voice throughout, and appropriate communication channels at certain intervals.

It’s important to recognise there are different approaches and levels of maturity across customer segmentation and treatment; rudimentary customer segmentation using limited variation in treatment and timing of communications, all the way up to a ‘best in class’, utilising a fully intelligent and dynamic segmentation approach.

To enable active segmentation and informed customer treatments, an infrastructure of systems and tech options must be available, which may include:

• Two-way asynchronous SMS - allowing customers to initiate contact and respond at their convenience
• Online landing page solutions - allowing for full curated service of debts, such as pay in full, part pay, payment plans etc
• AI-enabled knowledge management systems - increasing accuracy of information and response times
• Omnichannel experience - integrating channels to provide a comprehensive view of customer interaction and enhance CX

If you’d like to know more about how we can help, contact Joseph Cooper.