Helping Energy Suppliers Identify Vulnerable Customers to Avoid Bad Debt

As the cost of living in the UK has increased to its greatest level in more than 40 years, the focus on customers and their affordability has climbed to the top of the agenda for energy providers and water suppliers alike.

Utility companies are under increasing pressure to identify and support vulnerable energy customers, helping them prevent and manage debt. Ensuring high data quality in the energy industry is crucial for accurately identifying these customers and providing the necessary support. While some energy customers are engaging more with their utility companies to reduce costs and become more efficient, these companies must find new ways to drive behaviour change from customers. Of course, this must be balanced with maximising collections and providing an exceptional customer experience.

By identifying vulnerable energy customer, companies can benefit from the following:

• Reducing bad debt and increasing collection rates
• Minimising exposire to credit risk
• Improving forwarding information for Final Accounts
• An improved customer experience

A look at the energy industry

In December 2022, Ofgem and Citizens Advice estimated that 600,000 people were moved onto a prepayment meter (ppm) because they couldn't afford their energy bills. This figure is expected to rise again in 2023. Utility companies are working hard to identify their most vulnerable customers (particularly those on prepayment meters) to ensure that additional support is given to those who need it most. However, they face several operational challenges in the process, which we explore in our guide to operational challenges facing the energy sector.

It is more critical than ever for suppliers to proactively identify vulnerable customers, understand their circumstances, and provide tailored support to help them manage their finances.

Helping energy suppliers to proactively identify vulnerable energy customers

It’s not always easy for suppliers to proactively identify vulnerable energy customers. Only some customers recognise the severity of their personal circumstances and are forthcoming in asking for help, and some are unaware of what support exists and is available to them. When vulnerability is left unidentified, it can negatively impact a customer’s affordability and increase levels of supplier bad debt.

Energy suppliers must ensure that the right processes and interventions are in place to respond to customer and regulatory questions and concerns. By doing this, Energy suppliers will be able to find practical solutions to complex challenges, such as: Proactively identifying vulnerable energy customers and those who need the most support.

Things to consider when communicating the vulnerable customers:

• Segmenting your customer base- tailoring your journeys and solutions according to their needs
• Communicating with your customers effectively, helping you to maximise engagement to quickly establish their circumstances
• Ensuring compliance with your regulatory obligations (which can also result in reducing bad debt)
• Understand where you have gaps across your customer journey (from onboarding right through to field visits or litigation)

Knowing your customer

Building your understanding of a customer’s circumstances can make a real difference when offering support and recognising vulnerability:

• Health: any long-term disability, impairment, or illness such as blindness, deafness, infirmity, speech impairment, age-related conditions, and learning disability
• Life events: major life events such as bereavement, loss of employment or relationship breakdown
• Resilience: low ability to withstand financial or emotional shocks due to indebtedness, lack of support structure or a disempowered status
• Capability: little knowledge of financial matters, lack of digital skills or low confidence in managing money

When looking to identify vulnerable energy customers proactively, data should be clean and up to date, giving you the best chance of offering the most appropriate support and journey.

How can utility companies minimise bad debt whilst supporting vulnerable energy customers?

Firstly, you need a robust Credit and Collections process and policy reflective of your service type, customer risk, and a journey that helps you meet your regulatory obligations.

Secondly, customer focussed collections strategies will enable you to understand whether you are talking to a customer with affordability issues. Appropriately skilled staff are invaluable when holding sensitive and sometimes challenging customer conversations within a Collections department. Energy providers must invest in regular training to support their staff on how best to structure their call, the types of language to use (and avoid), how to build trust and how to present the options available to customers clearly and concisely.

Finally, quickly identifying where move-outs (including forced move-outs) and gone-aways have taken place will help to minimise debt; you can do this via third-party tools such as Occupier ID.

How to ensure you are using your data correctly to help vulnerable customers

Data is key. It helps you to learn more about your customers and to treat them accordingly based on their circumstances. Clean data and segmentation will group customers according to their current circumstances and enable tailored communications throughout the customer lifecycle, maximising engagement using the most appropriate channel, tone and language. In addition, using specialist third-party data sources can help identify financially vulnerable customers; you can also use credit risk management tools to know your customer and prevent business risk.

Key considerations

The six questions to consider when introducing tools and procedures to identify vulnerable energy customers and manage bad debt include:

1. Are you utilising the specialism of a debt collection agency, and is your management of their performance supporting the expected results?
2. How often do you review your policies and processes against changes to environmental factors?
3. How effective are you at triggering tailored customer communications at the different stages of Collections, such as for vulnerable customers, high-risk customers and unknown bill payers?
4. Are you communicating with customers before debt gets out of hand? Are there further opportunities to prevent debt (rather than just cure it), and have you identified the hotspot points in your collections journey where roll rates are higher, and customer payments are lower?
5. Do you know the source of unallocated payments (Are payments being made with the correct references, or are there suspended payments which need to be manually allocated?
6. Do you have a backlog of payments in suspense, and can you correctly allocate this to customers’ accounts?

Working with credit risk and data analytics experts such as Sagacity can help you to control and minimise bad debt in a number of ways.

To find out more, get in touch today.