COVID-19 and Bad Debt Provisions

COVID-19 and Bad Debt Provisions

COVID-19 has already started to increase bad debt provisions and write-offs and is forecast to grow further. The water sector alone has provided around £500m in bad debt provisions

Fuel and water poverty is likely to increase significantly, placing further pressure on provisions and bad debt write-off and requiring utilities to further strengthen their processes to support vulnerable customers.

We’re predicting a surge in the volume and complexity of contact that’s likely to impact customer service and collections and recoveries operations, especially as we head towards the end of mortgage holidays, furlough payments, and a surge in unemployment, which we are already seeing increase.

Regulator Challenges

It’s a challenging position for utilities as the Regulators are asking for increased forbearance due to the financial challenges being faced by domestic and business customers. However, the utilities themselves are faced with cashflow challenges due to lower consumption, particularly acute in the B2B Water sector, with many businesses still not open for business. The combination of reduced income and higher volumes of customers not being able to pay their bills is unprecedented in terms of the pace of this change.

The fact that many businesses closed and are beginning to open presents its own challenge as many of these businesses were marked “temporarily vacant” in the water sector. There is now a need to quickly know when those businesses have reopened. 

Billing estimates are also a challenge as consumption for many customers including businesses and organisations will have changed significantly due to temporary closures and a massive hike in home working. Historical records will no longer be fit for purpose in estimating consumption. This increases the need to obtain more actual meter reads to produce more accurate bills. 

Credit Checks

Assessing individuals and businesses credit worthiness will be problematic as financial circumstances have changed so quickly. This may be the catalyst for increased use of open banking and accounting to obtain a current and ongoing view of changes in income and expenditure. Increased adoption of this in the utilities sector would allow customers’ payments to be flexed in accordance with their income. This would be particularly important for many businesses as they start to try to return to normal trading patterns eg pubs, clubs and restaurants. Tariffs linked to open banking and accounting may start to be introduced as a means of helping customers with variable incomes and building customer loyalty. Such tariffs may well become an effective retention tool and customer retention will become ever more important to utilities. 

What action are you taking to re-evaluate your entire customer journey including collections system capability, collections strategies and processes, particularly those relating void properties to mitigate the risks associated with these unique challenges?

Is Anybody There? in conjunction with DScience is developing software that will improve the speed at which quality customer data is acquired using artificial intelligence, deep learning and process expertise.

We would welcome a discussion with you about developing a targeted intervention to better manage your voids and gap sites. 

Feel free to contact me directly.

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