Customer Debt Insights
INSIGHTS
Managing unprecedented debt in Energy & Utilities
Customer debt in the energy and utilities sector has reached unprecedented levels, intensifying pressure on both households and suppliers. While Ofgem and Ofwat continue to seek ways to ensure effective support for those in need, balancing fair customer treatment with strong financial performance remains a critical challenge.
At BFY, our team brings deep expertise in customer debt, honed through experience in collections and credit risk functions at leading suppliers. Our insights provide expert guidance and address key questions, including:
- How significant are the sector’s customer debt challenges, and what are the key trends?
- What practical actions should suppliers take to better support customers during this challenging period?
- How might increased regulatory focus shape the future of customer debt in the sector?
INSIGHTS
Customer Debt
Domestic energy suppliers faced £1.5bn cash coverage deficit in Q4-24
Our latest analysis indicates that domestic suppliers faced a £1.5bn cash coverage deficit at the end of Q4-24. This marks the fourth consecutive quarter in which suppliers have had to finance a shortfall in net balances - a clear departure from historical trends and a stark indication of the ongoing challenges in maintaining capital adequacy.
Energy debt hits £3.85bn, but growth slows to lowest rate since 2022
Domestic energy debt hit a record £3.85bn in Q4 2024, rising by £0.75bn over the past year. Although a seasonal increase from Q3 to Q4 is expected due to winter consumption, the latest rise of £30m was the smallest quarterly jump since 2022, indicating a potential shift in the crisis.
How to solve a problem like fuel poverty
Following the launch of our fuel poverty report in Parliament earlier this month, David Watson explored our key findings in a recent article with Utility Week.
Households spent £110m more on bills this winter, despite lower Price Caps
Households spent £110m more on their energy bills this winter, despite lower Price Caps. Analysis from John de Bono shows that while energy Price Caps were ~10% lower, many households still saw higher heating costs due to colder weather and cuts to government support.
Why is energy debt still going up?
Recent media coverage is recycling something that as an industry we’ve understood for a while – energy debt is still going up. But why? Compared to 2 years ago the macro economic picture is positive – prices have fallen significantly and incomes are outpacing inflation. This should all be driving debt down, but it’s growing.
Suppliers face prepay balancing act as additional support credits hit £150m
Understanding who in the prepayment portfolio needs support - and how much - remains critical for energy suppliers. While ~£9 of the current price cap includes a temporary allowance for bad debt, this relies on suppliers operating at a ‘notionally efficient’ level. Rachel Littlewood and the team outline five steps to help you enhance your approach, and strike the right balance between support, operating costs, and bad debt.
Domestic suppliers will need to make up £250m cash shortfall
Domestic energy suppliers faced a £250m cash coverage deficit at end of Q3. For the third consecutive quarter, suppliers had to finance a shortfall in net balances, even as customer credit balances reached their seasonal peak. It marks a shift from previous years, when suppliers had a positive net cash position during this period.
Energy debt hits record £3.8bn, as Ofgem propose initiatives to raise standards
Energy debt has reached a new high of £3.8bn as of Q3-24, up £134m from the previous quarter, and £0.9bn over the past year. Alarmingly, £2.9bn (75%) of this debt remains without any repayment arrangement in place, with 2m customers in this bracket. Total debt has almost tripled since 2020, and the volume of customers without repayment arrangements is up 700k (55%) in the same period.
Tailoring service for prepay is more critical than ever this winter
Demand from prepayment customers is expected to rise by 50% in winter, and with affordability challenges at unprecedented levels, bespoke service is needed more than ever. We look at what's needed to address the immediate impact here, laying the foundations for a sustainable, long-term approach.
Energy bills to rise ~£800m after Winter Fuel Payment cut
Analysis from BFY Group shows the ~10m customers losing their Winter Fuel Payment will pay an additional ~£800m in energy bills this winter vs last.
Typical DD customers are ~1.7x monthly payments in credit
As we head into winter, typical Direct Debit (DD) customers are in credit by ~1.7x their monthly payment. With c.70% domestic energy customers choosing to pay by DD, payment adequacy is critical for supplier health.
Domestic energy suppliers faced £1.6 billon cash coverage deficit in June 2024
By combining Ofgem's latest data on customer credit with their recent market debt figures, BFY Group analysis shows domestic suppliers faced a £1.6bn shortfall to the target cash reserve in June 2024 - an increase of £1.4bn from 12 months before.
Customer Debt
Meet the Team
Rachel Littlewood
Director
Rachel leads our operational and financial turnaround engagements, helping to solve complex operational challenges while maximising commercial performance and customer outcomes.
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Kevin Scott
Director
Kevin leads client engagements with a laser focus on empowering clients to navigate large-scale events and market challenges.
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Kev Brown
Senior Manager
Kev leads continuous improvement and lean transformation projects with our clients, supporting customer operations to deliver our Leadership and People Excellence programme.
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Jonathan Paton
Senior Manager
Jon specialises in Customer Operations leadership, customer contact, and operational service delivery transformation/improvement.
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Jon Vincent
Client Director
Jon helps clients resolve problems with billing, settlements, and customer service.
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Joseph Cooper
Manager
Joseph supports our Retail clients to improve their operational processes and business performance.
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Our Impact
Identifying ~£50m BDC reduction opportunities for energy retailer
Through our debt maturity assessment, combined with a broader focus on billing and customer contact activity, we identified routes to achieve a ~£50m BDC reduction for an energy retailer. This informed a targeted improvement programme to address capital adequacy challenges, driven by rising debt and BDC.
Cash recovery initiatives deliver ~£275m benefit for large Energy supplier
Our debt team supported a large Energy supplier with recovering their cash position, achieving a total benefit of ~£275m through collaborative initiatives.
£4.5m in Bad Debt benefits for large energy retailer
We helped a large energy retailer to generate immediate in-year debt benefits through tactical interventions. Our programme delivered ~£4.5m in Bad Debt benefit and ~£8.5m in cash collection, all while maintaining customer and productivity measures within the operation.
Collections improvements deliver ~£5m cash for Water retailer
We supported a B2B Water retailer with a series of collections improvements, achieving a cash uplift of ~£5m in five months.
Tactical debt improvements deliver ~£7m cash for large Energy retailer
A large Energy retailer was facing significant challenges with customer debt, requiring improvements to their collections processes to mitigate this. Their total debt was ~£100m at the time of engaging BFY, with communication gaps present across the customer debt journey.
Debt Taskforce delivers 10x ROI for large B2B Water supplier
A large B2B Water supplier was facing significant bad debt challenges, and required support with managing this. They recognised that their collections strategy was underperforming, seeking opportunities to optimise this and increase output.
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