It's hard enough to handle unprecedented levels of debt without having to worry about the increased hardship and vulnerability many consumers and small businesses are experiencing due to the current pandemic. But Credit Managers of Essential service providers are finding themselves in an increasingly challenging situation. Precariously balancing commercial outcomes and targets, whilst striving for a good customer experience, and with referrals to outsourced debt collection suspended for many, is by no means easy! And as government support subsides, moratoriums end and outsourced collections activities resume in the second quarter of 2021, a tidal wave of hardship is expected into the next financial year.
The good news though is help is at hand in the form of innovative outsourced collections partners and it may be time for Credit Managers to rethink the traditional debt collection approach entirely. Customer re-engagement campaigns are a newly considered approach but executed with the right conversational skillsets, technology, communication strategies and experienced management they can get impressive results both from a customer experience point of view and in monetary terms. But more on that later.
Firstly, let's take a closer look at exactly how much debt levels have increased within essential services and why there is a need for a new approach when debt collection resumes.
Debt collection in the Covid environment
The COVID-19 pandemic has contributed to higher bills for many with remote working conditions driving up Energy and Water use within the home. The industry estimates residential energy consumption has risen between 15 and 20 per cent due to the pandemic. Add to this ill health or lost work due to COVID-19, and many could be facing financial hardship.
In response to the expected rise in hardship due to the COVID-19 crisis, the National Cabinet (the Heads of Commonwealth, State and Territory Governments) announced the following principles to apply to both utility companies, telecommunications and council rates:
• Offering flexible payment options to all households in financial distress
• Not disconnecting or restricting supply to those in financial stress
• Deferring debt recovery proceedings and credit default listings
• Waiving late fees and interest charges on debt (*1)
There is no doubt such moratoriums on disconnections, restrictions and debt recovery services have provided some much-needed breathing space for consumers struggling to negotiate the challenges of the COVID-19 environment. However, unsurprisingly perhaps, in the wake of these guidelines, many organisations have cut back on any contact that may be perceived as a 'collections activity', erring on the side of caution in a highly regulated and media sensitive environment. In some cases, they may not have engaged with customers since March. In the meantime, the debt remains and in most cases is accruing on a daily basis.
Energy and water statistics on increased debt
For Victorian waterboards, the Essential Services Commission has reported an increase of 5% increase in hardship and as many as 775 Victorians applying for Utility Relief Grants (URGS) each week on average. (*2)
Figures from the Australian Energy Regulator show that Household electricity 90-day debt grew by $15 million from the end of March through to October, a 14 per cent jump, with the average amount of debt owed up 17 per cent to more than $1,100. It is a similar story for small business owners with the total amount of 90-day debt in the same period rising 45 per cent. That is an increase of $13 million to almost $42 million, and small businesses on average owed $2,690, up 40 per cent.
Despite these increases in 90-day debt, there was a 15 per cent drop in customers on payment plans and a 7 per cent drop in hardship arrangements during March to October. (*3)
Many customers it seems have deferred payment citing financial stress, but this isn't necessarily the best thing for them as their debt is simply getting bigger. Many more vulnerable customers in hardship may not have been identified due to the lack of collection activity or contact. Others may be experiencing hardship for the first time and not familiar with the help available. Or organisations may simply be struggling with the increased volume of calls and unable to get specialised and skilled resources providing the right assistance to the people who need it.
Customers need to be re-engaged so that:
• debt can start to be reduced for both the individual and the organisation
• customers experiencing hardship can be identified at an early stage to get the assistance they need
• where possible customers can be set up on sustainable payment plans or placed into hardship programs to start chipping away at their debt
• the right support and assistance can be offered to vulnerable customers whether that be flexible solutions or external support services
• disconnections can start to take place again in certain situations to prevent spiralling debt.
The problem with standard outsourced debt collection procedures in the current environment
Traditionally, Energy companies would refer only accounts after disconnection. In the current environment few accounts have been disconnected and the sheer volume of accounts that will require some sort of follow up or collection activity after March, may well be too high for many organisations to effectively manage inhouse. On the other hand, if they refer accounts through to a third party for usual debt collection activities there are several risks to consider.
For instance, many current outsourced collection procedures rely on outlining the consequences of non-payment to a customer with a clear escalation process eg. disconnection or restriction/referral to a debt collection agency/credit default listing/legal action/interest and added fees etc. Also, KPI's and call quality frameworks can be heavily weighted towards monetary targets and compliance with little consideration of what a good quality collections conversation looks like.
The result if this is applied in the current environment? Further disengagement with customers, higher levels of vulnerable customers not getting the assistance and support required, rise in complaints and a heightened risk of adverse media attention. In addition, collection staff handling increased volumes of challenging calls can easily experience burnout.
But what is the alternative, as money still needs to be collected?
Customer re-engagement campaigns: An alternative approach
Changing times require a change of response. Now is the time to look for an innovative outsourced collections provider that can handle a large volume of accounts sensitively, to effectively re-engage customers with clear well-defined outcomes in mind, such as:
• payment of account from those that have capacity
• set up of sustainable payment arrangements that are suited to individual circumstances
• identification, assistance, and support of vulnerable customers
• recommendation for entering hardship programs
• management of hardship customers if required
• recommended write offs
• referrals for disconnection where appropriate
• timely referral of any complaints to keep ombudsman cases down
• successful completion of Utility Relief Grants
Key success factors for successful customer re-engagement
Below are some factors for consideration that are critical to the success of any customer re-engagement campaigns:
1. Highly Skilled Operators – A campaign such as this requires highly skilled operators that are trained in having intelligent and genuine collections conversations. They should be easily able to build trust and rapport with the customer and know how to apply empathy. Strong listening skills are essential along with knowing the right questions to ask respectfully to understand a customer's financial situation. There will still need to be consequences for non-payment of debt where required but instead of outlining these to the customer as a fear tactic, a highly skilled operator would instead sell the benefits of payment eg. 'By setting up this payment plan and keeping to it we can reduce the debt, protect the account from any further action, and relieve some of the stress for you.'
2. Strong focus on Hardship and Vulnerability – Staff employed to do these campaigns need to have a heightened awareness of hardship and vulnerability. Understanding red flags and triggers to better identify vulnerable customers and to ensure they get the right assistance and support. Some forward thinking outsourced providers will have specialist hardship divisions that can assist in ongoing management of hardship accounts.
3. Wide range of communication options – Any re-engagement campaigns should include a full range of communication options allowing the customer to choose their preferred way to engage regarding their account. Whether it be automated options such as interactive voice or text messaging, customer online portals and chat options, talking over the phone or conversing via email. The latest in collection technologies such as rich media messaging allows for letters to be embedded in texts and interactive 2-way text communication provides easier ways for customers to communicate.
4. Relevant and effective content and messaging – It is essential that letters, emails and texts are tailored to engage customers in the current environment. Drawing on behavioural economics, psychology insights, and reviewing layout and design, can have huge impacts on the success of engagement and collection strategies.
5. Onshore operation – Ideally these campaigns are handled onshore as foreign accents and a lack of fluid English can easily irritate and/or further disadvantage already-frustrated and vulnerable customers.
6. Relevant Experience – When looking to outsource accounts prior to disconnection some organisations may want to look at a first party campaign rather than a third party calling on behalf of them. But whether first or third party, brand reputation is absolute key for Essential service providers. That's why it is important to partner with an outsourced provider that has proven capability in delivering similar successful campaigns which can be demonstrated through case studies and testimonials.
7. Relationship Focused – Last but certainly not least underpinning all successful outsourced re-engagement campaigns is the ability of the outsourced provider to develop strong relationships with clients. Each campaign will need tailoring to specific client requirements and a good relationship will ensure open communication, trust, flexibility, and the best outcomes for all.
All in all, the challenges of the past year mean that a renewed approach to outsourced collections is needed for Essential Service providers. Sticking to outdated debt collection processes that rely on consequences and escalation in this environment could cost more money in the long run and take a big toll on brand reputation and the wellbeing of your customers. Conversely, a customer re-engagement campaign puts a positive slant on effective collections. Designed to assist the customer and sell the benefits of engaging and paying off their debt, it will return the best results both in terms of the overall customer experience, and commercially. Is it time to consider your new approach to collections?
*Andrew Smith MICM CCE is Founder and CEO of ARMA, providing customer focused collections.
He can be contacted on 0403 228 211 or email@example.com
*1 Government responses to COVID-19 in the energy sector | energy.gov.au
*2 Essential Services Commission Report in September 2020 More customers seeking support in paying water bills, 14 October 2020 | Essential Services Commission
*3 AER extends COVID-19 energy customer protections | Australian Energy Regulator