Increasing Cash Flow is a Key Priority for Utility Companies
- Mar 18, 2013 6:00 pm GMT
- 2308 views
Utility companies are under increased pressure to build new infrastructure that will drive better performance and returns for decades. Recent natural disasters have brought this issue to the forefront but it requires capital. According to Booz & Company, "Capital expenditure requirements across the U.S. utility industry are expected to exceed US$100 billion annually through 2020. This represents an increase of 100 percent over the annual costs of the early 2000s, according to Edison Electric Institute." Couple that with the increasing pressure to minimize bad debt as delinquencies and losses continue to rise and it becomes evident that utility companies will need to be more strategic about how they increase their cash flow or capital. Improving collections is one area utility companies can improve in order to help increase cash flow.
Due to the size of their customer base, utilities have a huge cost of collection. Whether it's the cost of mailing a disconnect notice, running an IVR, using a predictive dialer and making outbound calls, handling an inbound collection call or managing field disconnects, utility collections are expensive.
Additionally, as more customers struggle to pay their bills, utilities are competing with other creditors for a share of the consumers' shrinking wallet, while sustaining a balance between customer service, customer satisfaction and consistent recoveries. Increased credit losses, rising Days Sales Outstanding (DSO) or Average Days to Pay (ADP), and human resource constraints and increasing collection costs have driven utilities to search for new technology to improve collections processes.
For this reason, companies are turning to statistical payment behavior modeling to help predict the likelihood of delinquency, probability of a shut-off or even the likelihood of a direct debit payment not going through.
The models will identify which residential, small business and commercial accounts are likely to pay on a timely basis or self-cure, even if past due, and which accounts are likely to become seriously delinquent. Knowing and using the probability and odds of the occurrence of serious delinquency or write-off enables companies to develop a risk-based collections strategy to work the right accounts. By using this methodology, the use of final notices, field visits, collection calls and letters can be more productive. The models evaluate the risk associated with each customer based on statistical relationships associated with previous payment behavior in order to proactively identify future delinquencies. Once the models detect an issue, the company can then initiate the most optimal collections strategy to mitigate and control this payment risk.
By identifying late payment behavior proactively, companies can then implement a stringent collections plan associated with riskier accounts. The scoring models help to accurately prioritize dunning strategies, outbound Interactive Voice Response (IVR) dialing strategies, field visits, disconnect strategies and deposit requirements based on risk rather than how much money is owed and the age of the account. Also, this scoring technology helps improve customer service and the customer experience by minimizing collection treatments on low risk accounts that are very likely to self-cure
Utilities who have implemented risk based collections based on statistical payment behavior models have seen a tremendous reduction in the cost of collections while increasing cash flows by aligning the right customer with the correct treatment path based on risk. While the long term goal of improving infrastructures or even increasing cash flow to manage the business itself may be daunting to many utility companies, those who are taking steps to improve their processes will be in better shape for the future.