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
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.
Domestic Energy Debt Reaches Record £3.7 Billion
Energy debt hits a new peak of £3.7 billion as of Q2 2024 as Average debt per customer rises to a record £1,094. Energy debt has continued to increase by 40% since Q2 2023 while average annualised customer bills have levelled out.
Optimising your DCA strategy to mitigate rising debt
Domestic debt keeps rising, and engaging customers through tailored journeys is crucial to take control of the situation. Refining your approach to DCAs can drive these improvements, supporting your internal efforts to better manage customer debt. We've outlined three steps here to help maximise results from your DCA relationships.
Domestic energy suppliers faced £1.9bn cash coverage deficit
By combining Ofgem's new data on customer credit with their recent market debt figures, our analysis shows domestic suppliers faced a £1.9bn shortfall to the target cash reserve in March 2024 - an increase of £1.1bn in the past 12 months.
Domestic energy debt has reached £3.3bn, up £1.1bn in a year
Ofgem have shared their Q1-24 view of domestic energy debt, reporting a total debt value of £3.3bn in the industry (54% increase since Q1-23).
Preparing third party relationships for more winter debt
Record debt levels mean high volumes of customers are likely to be sat in external collections processes. Suppliers must focus on strengthening third party performance in the build-up to winter, across the five areas covered in our framework.
Video: Bad debt is an emerging concern for Water suppliers
With market conditions changing, water suppliers may need to re-think their approach to bad debt forecasting.
Winter Preparedness - Is it time for a Debt Health Check?
Given the £bn increases in unsecured debt and Direct Debit failures over the past year, suppliers have an opportunity to re-assess how they're set up to deliver customer outcomes. Leveraging this understanding is key to take control in such a challenging macro environment - see how improvements can be brought to life in this blog.
Customer Debt
Meet the Team
Rachel Littlewood
Director
Rachel leads our Financial Optimisation work streams, working with leaders to improve profitability & cashflow
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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
Senior Manager
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.
View ProfileCustomer Debt
Our Impact
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.
Debt improvements through organisational design for a large supplier
We supported a large energy supplier with improving their debt book performance, after our Debt Maturity Assessment highlighted gaps in their ways of working and organisational design. Over a six-month period, we delivered a series of improvements to the supplier’s processes, also enhancing their ability to manage performance internally.
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