Prepare for PR24 – Is it time for a Debt Health Check?

As PR24 approaches the final straight, starting with June’s draft determinations, suppliers must be readying themselves to act on the proposed changes – in which 3.2m households are set to receive support with their bills.

We know that many water customers have deemed their bills unaffordable for some time, likely worsened by the record levels of energy debt in today’s market, amplifying Ofwat’s previous calls for an affordability focus in PR24 plans.

So far this year, the regulator has emphasised a need for inclusive debt management services, and an empathetic approach to tailored recoveries, meaning this key focus for suppliers is about to become even bigger.

Suppliers must be reflecting on their internal debt management maturity, in readiness for the upcoming implementation of PR24, understanding if and where any interventions are needed.

How well do you know your customers?

Refreshing not only payment data, but also commissioning new insight centred around future impacts of the cost-of-living challenges, will identify further areas of improvement and opportunities in delivering better customer outcomes.

Determining the quality of your customer interactions, objectively, should be a primary focal point when assessing internal debt maturity. Do the support options that are available to your customers still meet their needs? When was it your customers gave feedback on how easy they feel it is for them to make a payment? Are payment arrangements that separate arrears and ongoing consumption still working for the business and the customer as expected?

Asking these types of customer-centric questions, from a capability-based perspective, is the first step towards identifying areas of improvement. Suppliers must get to the root cause quickly and drive tailored solutions, predicting a level of anticipated need through a complete understanding of customer circumstances.

To deliver these outcomes, your understanding of customers should go beyond overseeing interactions. There’s a wider conversation to be had around customer data and its importance in building a holistic approach to credit management. It’s an impact we’ve already seen with a Water retailer, where internal changes were identified to enable better utilisation of customer data in collections, alongside improvements to customer journeys and the automation of Direct Debit adequacy, delivering ~£5m cash benefit.

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 continually adapted which may include:

• Reviewing the processes for two-way asynchronous SMS – ensuring it allows customers to initiate contact and respond at their convenience

• Monitoring of Online landing page solutions – measuring performance and engagement for customers paying in full, part pay, or payment plans etc

• Testing of AI-enabled knowledge management systems - increasing accuracy of information and response times based on expected contact types

• Putting yourself in the customers shoes of your Omnichannel experience – are the channels integrated sufficiently to provide a comprehensive view of customer interaction and enhance CX?

Can you proactively respond to risk?

Establishing a deeper, active view of customer circumstances puts you in a stronger position to identify risks. But reviewing your internal capabilities to mitigate these risks, in advance of them arising, is equally as important to deliver the level of support required.

This can be achieved by taking key capabilities like planning ahead and knowing the process, and assessing these against importance, value add, and potential benefit. Outcomes of this assessment can help to inform strategic decision making, telling you where to act to drive positive customer outcomes.

For example, if a customer’s consumption takes a sharp, unexpected increase, do you have the early engagement capabilities in place to help them manage this? If the increase is being caused by an unknown leak, are you contact centre teams appropriately staffed and trained to help a customer detect the problem, and are your field teams ready to respond to help fix the issue, reducing consumption back to a normal level?

Are strategic objectives aligned to your operating model?

Consider whether your operating model is set up to support your strategic objectives, by asking capability questions that are customer-driven, aligning with the typical customer-centric nature of top-down objectives.

The findings from these questions, coupled with your observations from the front line, can help you to understand if operational activities ‘roll-up’ to deliver against strategic KPIs. Where gaps are present, this process of strategic assessment can help to ensure that key areas of priority are aligned to critical objectives.

How are you optimising the stages of the customer journey based on risk? Are communications being tailored to this risk level? Do you have teams specially trained to recognise escalation opportunities?

Alignment of objectives and the operating model also needs to span outside of your organisation, covering any third parties involved in the credit management process. Upholding these parties to your own internal standards is critical, to drive the operational activity required for achieving strategic objectives.

Adapting debt maturity to new challenges

Building a strong debt maturity model is a must for suppliers, in preparation for PR24 and the proposed increase in customer support. This model is about more than checking how you stack up against industry averages – it needs to identify the foundational aspects of effective credit management and be leveraged to drive innovative solutions for customers.

Key points to consider:

• Does your customer data go deep enough to deliver innovative solutions in today's market?
• Are your teams equipped to utilise this data in early engagement, to prevent issues like increased DD failures?
• Are top-down objectives, like reducing unresolved debt, being driven by the operational activities you're prioritising?

If you’d like more insight on improving debt maturity ahead of PR24, contact Rachel Littlewood.