How to proactively and profitably manage credit accounts

Joel Lewis, InoVision

Dealing with assessing delinquent accounts can be challenging for a utility company. However, there is a way for credit and collection managers at utility companies to assess risk, manage current delinquent accounts, and resolve final bill accounts to minimize losses and cost while maximizing income via late payment charges to become a profit center.

Through the use of scoring technology from the birth of an account to its dis-solution, utility companies not only can reduce their expenses associated with collecting, but also generate income from customers who are not truly a risk.

First things first

Previously, utility companies could not verify who the customer was; they just got a name and address. Credit was a bad word; it wasn’t the sexy part of the organization. Today, things are different. Utilities are struggling to control costs and increase revenue while bad debt losses go directly against the company’s bottom line. While it is still critical to give good service up front, utilities can now determine the credit risk of a customer at the time of application thus mitigating potential bad debt losses.

For customers who are calling to connect services, here are the tactics you should have in place in order to minimize credit risk: Run a quick credit scoring check/Pos ID scan through a credit valuation company such as Equifax. If the customer doesn’t pose a credit risk, then provide that customer with a quick phone call service connection, meet their needs, keep the average phone talk time down, and don’t tie the customer up by having them come into your office or bill pay station to unnecessarily secure the account.

Determine fraud or unacceptable risk

Today’s scoring technology can help utility companies evaluate the degree of risk posed by a customer seeking services and can mitigate any up-front and ongoing credit concerns.

Generally, scoring technology can be embedded into the utility’s customer information system. Once this is done, credit managers can score accounts. This is accomplished by looking at customer data—length of residence, if they own or rent, prior bad debt account balance, and size of the account due. This information can be compared and merged with the customer’s credit score to determine how much of a risk the customer poses.

After the potential for risk is assessed and a deposit is deemed necessary, payments can be taken via check or credit card over the telephone or wire prior to providing new services. This course of action is easy for customer service representatives to administer. Moreover, it provides for immediate payment for prior charged off accounts, eliminates followup deposit notices, eliminates field collection costs, reduces potential to disconnect customers for prior amounts due and reduces the number of calls to the customer service center, because one call really does it all. It all translates to a healthier bottom line. Proactively.

Managing current delinquent accounts

Once you have credit scored current delinquent accounts to determine actual risk, a utility company can waive sending notices on accounts with a passing score. Doing this saves postage, forms, handling costs and calls to customer service centers from non-risk customers. And, it enhances customer relations because threatening notices are not being sent to non-risk customers.

In addition, the ability to waive notices to non-risk customers helps generate late payment charges. The idea here is not to encourage non-risk customers to pay on time. The result is additional revenue for the utility company and allows the credit department of a utility company the opportunity to establish itself as a profit center. This is revenue without risk.

Scoring technology also permits a hierarchy of risk accounts to be established by properly identifying accounts requiring immediate collection or disconnection of service. Since no utility has the resources to work all disconnection notices, risk scoring ensures the most risky accounts are disconnected thereby reducing propensity for losses.

Managing final bill accounts

Scoring technology also helps when the final bill has not been paid and is subject to charge off.

Accounts with a passing score can be retained and not sent to a collection agency thereby saving collection agency fees. This also reduces the potential for complaints and improves customer relations by ensuring non-risk customers are not contacted by collection agents and treated as risk customers. Once this is determined, a utility company can take the appropriate action to ensure that the final bill is sent to the correct/updated address.

An ounce of prevention is worth at least 10 pounds of cure. So in addition to using scoring technology, consider the following:

“- Subscribe to a national credit scoring service for residential accounts, i.e. Equifax or TransUnion.

“- For non-residential accounts, watch for companies being downgraded to below or significantly below investment grade, especially with negative implications from a national credit rating service such as Standard & Poor’s Credit Watch. Determine if such companies are on your system, evaluate the amount of risk, and if dollar risk is warranted, request a security deposit or an alternative payment method, for example, payment due within five days of presentation.

“- Consider minimizing preference liability by having tariffs modified to say that in lieu of a deposit, accelerated payments may be made by non-residential customers.

The credit and collection goals of any utility company should be to minimize gross losses, maximize recoveries, minimize administrative expenses, retain poor paying but no-risk customers and, ultimately, become a profit center. Remember, the front-end of planning is a fail-safe profit maker.

Lewis is president of InoVision, A Marlin Company LLC, which is the largest provider of after collection solutions for utilities in the country. He may be contacted at 804-364-0195 or at joel@inovisioninc.com.

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