Getting ‘winter ready’ – Weatherproof your pre-delinquency strategy

As we conclude what’s been a turbulent British summer, the uncertainty of autumn and winter is fast approaching, with our projections showing this will be another challenging period for customers.

Due to government support being withdrawn, customers are likely to receive higher bills in winter 23 than in the same period last year. We’ve already seen the problems created by increased bills, so the thought of this getting worse in the coming months is understandably worrying.

Although external conditions are uncontrollable, there’s action that suppliers can be taking right now to get ahead of the curve, and ensure they’re supporting customers fairly through an improved approach to managing debt.

An assessment of your pre-delinquency strategy should be top priority, which we’ll help you to carry out throughout the course of this blog. Pre-delinquency deliverables target emergent debt, looking to prevent or mitigate before a debt event or aged issue can occur. As these customers aren’t overdue, suppliers can tailor their approach and interactions to be friendly and helpful.

How are customers being impacted?

A very similar story can be seen coming from both the Energy and Water sectors, with increased living costs continuing to impact millions of households, and no plans for the Energy Support Scheme to be repeated.

Ofwat has previously reported that many customers are drawing down on their savings, borrowing from friends and family, or taking out loans to cope with higher bills and living costs. Their research also found that two-thirds of customers are expecting their struggles with bills to worsen throughout 2023. This will be another difficult winter, not only for those customers already financially vulnerable, but also for those experiencing payment challenges for the first ever time.

These levels of financial difficulty are also apparent in recent data from Ofgem, albeit relating to customers on smart prepayment meters. In Q4 2022, the number of instances of self-disconnections was more than double that of 2021. These events were also lasting longer, with customers disconnecting for under 3 hours less frequently, while larger proportions were disconnecting for up to 24 hours or even 7 days.

How to prepare – Pre-delinquency weatherproofing

With the economic landscape continuing to look bleak for customers, strengthening your pre-delinquency strategy should be a crucial priority.

Proactive, early engagement provides an opportunity to notify customers of issues before they themselves are aware. For example, think about a failed Direct Debit - having processes to identify trigger events will create opportunities to seek an immediate resolution, and prevent a delinquency issue from arising.

This is just one way in which pre-delinquency can lessen the impact of challenging conditions on customers. For a more comprehensive approach, you should consider the actions below:

1. Carry out a data health check – Are you making the most out of the data you hold? By identifying gaps and improving the quality and availability of data, you can strengthen the segmentation and risk profiling of your customers. Adopting a risk-based approach will allow you to engage with more customers at an early stage, preventing them from entering the collections journey.
   
2. Develop your risk management strategy – Understanding your customers risk profile will allow you to decide on the most effective way to manage them. This may be through scorecards and setting terms, or earlier interventions as discussed in actions 3 and 4. But what’s really important here is ownership, regular monitoring, and your ability to adapt to changes in the customer’s situation. This will ensure you have the visibility required to provide tailored support to your customers, helping them to avoid falling into debt where possible.
   
3. Review your pre-delinquency policy and processes – Ensuring you have robust policies and processes is key when embedding an effective pre-delinquency strategy. This means creating the operational capacity and system capability where needed, allowing you to be more pro-active with customer needs. Your priorities should include capturing the right information from customers, sending out accurate and timely bills, and having clear processes to identify trigger events that could lead to delinquency.
   
4. Enhance your customer engagement strategy – Using a segmented approach to customer engagement can allow you to adjust frequency, tone and channel of messaging, based on the behaviours of particular groups. For example, you may have less engagement with low-risk customers, allowing them to self-heal. And for higher risk customers, you may look to engage with them sooner, still maintaining a friendly approach. In these situations, it’s important that the customer feels supported by the identification of issues, confirmation of products and services, and the opportunity to discuss payment options, without the call becoming a debt recovery conversation.
   

How can we help?

At BFY, our Debt team are continuing to support suppliers in the face of today’s economic challenges, as risks of customer indebtedness remain real. We can help you with carrying out the actions outlined above, delivering a winter readiness health check which facilitates improvements to your pre-delinquency strategy.

If you’d like to know more about how we can support you, contact Natasha Lunt or Joseph Cooper.