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How Is The Utilities Industry Preparing For A Bad Debt Crisis?

Wednesday, 14 July 2021

By Simon Biddlecombe, Accounts Director, EQ Hazell Carr

With increasing numbers of their customers falling into financial difficulty, utilities companies face a challenging winter of unpaid bills. But there is a solution – and it’s one that lies in a proactive approach combined with the right people and technology.

It’s the perfect storm that many in the utilities industry are dreading. As the Government winds up its pandemic-related financial support this autumn, a surge in debt and late payments is inevitable. Compounded by the impact of plunging temperatures in winter, frontline teams are likely to face highly challenging months of fielding calls and supporting customers in financial difficulty.

And of course, even with the support of the furlough scheme and other government initiatives, the requirement of people to stay at home during the pandemic crisis has inevitably caused domestic consumption to soar. According to Citizens Advice, three million customers have struggled with their energy bills, with almost as many having difficulty paying their water bills.

It’s, therefore, no surprise that Ofwat recently launched a consultation to review its guidelines as to how water companies support residential customers around paying bills, accessing help and repaying debts. The challenge, as ever, is to protect customers who can’t pay, while managing those who simply refuse to pay.

As Ofwat Customer Policy Lead Andrew Lincoln explained “Building on CCW’s Affordability Review, our consultation proposals are about companies making it as easy as possible for all customers to pay bills, get help and repay their debts. This can be done by forming partnerships and being more proactive, joined-up, consistent, customer-led and inclusive by design. It’s a huge opportunity for companies to improve their understanding of their customers and show how much they care.”

The ‘new vulnerable’

Yet the utilities sector has been more proactive than most with the establishment of the Priority Services Register, which gained momentum during the pandemic crisis. And during this period, companies also worked hard to provide pre-payment customers with fresh ways of topping up.

However, as the UK faces personal debt levels of £10.3 billion (source: Step Change) – the highest level since 1960 – and the media debates the rise of the ‘new vulnerable’ and the ‘just about managing’, both Ofwat and Ofgem are likely to continue ramping up measures to support the vulnerable.

Furthermore, as call volumes have risen during the pandemic crisis, Ofgem has reported increased customer dissatisfaction over services and complaints handling. Add to that the potential double whammy of further fuel poverty this winter and it’s a lot for the industry to manage.

Research from the Fuel Bank Foundation has highlighted that under 10% of people who seek Fuel Bank help will have contacted their energy supplier asking for support or help or advice. Chair of Trustees Matthew Cole commented, “Those utility companies who can get ahead of a customer’s personal crisis, who can spot that they may need some extra support in coming months, or who can highlight practical ways for a customer to either mitigate or avoid a future problem, will find that both their customer and the company benefit.”

Financial bounce back

Yet despite the doom and gloom, economists are predicting a financial bounce-back as the UK re-emerges from lockdown. The months ahead could be tough for the utilities sector but, if the issues around call volumes and supporting financially vulnerable customers can be smartly managed, there are grounds to believe that the situation will start to improve in spring 2022.

Steve Crabb, the Chair of Energy UK's Vulnerability Commitment, summarises the industry’s response so far and what more needs to be done:

"Over the past few months, I've seen first-hand how energy suppliers are trying to prepare for the challenges ahead through innovation, collaboration and building new programmes to support those most in need. Managing the challenges ahead will require joined-up working between energy suppliers, the state and the third sector – the problems are too big for a fragmented approach to succeed."

EQ is already in discussion with utilities companies that want to put steps in place to manage the challenge ahead. These companies recognise the need to draft in experienced, fully trained personnel who can be deployed alongside their existing teams to manage triage, evaluation, vulnerability assessment, payment plan agreements and achieving a satisfying outcome – both for the customer and for the business. Also crucial to this is the ability to meet regulator expectations over the choice of communication channels open to consumers.

Weathering the storms ahead

As well as our strong connections with the utilities world, EQ brings highly relevant experience in managing these logistical challenges. For instance, we played a significant role in helping the financial services sector respond to the PPI crisis, deploying flexible and cost-effective support quickly, while ensuring full regulatory compliance.