Dunning management: managing outstanding payments in the world of utilities

Updated on 03/10/2022

Today, the activities of dunning management and collection in the utilities sector is increasingly seen as a strategic asset of fundamental importance. Net of the commercial fluctuations of the sector, the amount of outstanding receivables is enormous and seems destined to increase. Managing it then becomes a challenge that the utilities world has to face. For this reason, for players in the energy and utilities sectors, whether they are longstanding companies or aggressive newcomers, an effective strategy for minimizing the risk of non-payment appears increasingly crucial to maintain profitability. As a result, it becomes essential to manage the various phases of credit repayment in a timely and accurate manner, using the most advanced tools and procedures.

What are the best solutions for managing the debt collection process efficiently? How can digitization make reminders more effective, thus helping to reduce the problem of late payments and safeguard the liquidity levels of utility and energy companies?

Characteristics, risks, and opportunities of an evolving market

The electricity and gas markets have now been “open” for more than a decade. Users are therefore free to decide whether to remain with a government backed utility, such as by the Public Sector Authority (Arera), or to join one of the many operators now doing business on the market. According to a report of 2022 by Arera on the state of the retail market, in the electricity and gas sector, consumers who chose the free market increased compared to previous years. The survey also highlighted a series of critical issues related to domestic users who, having chosen a contract in the free market, found themselves paying, on average, higher costs due to “additional services, elements of commercial differentiation, and different price structures included in the offers”. Analyzing the composition of the portfolio of the companies in this industry, we see: 

• diversified between corporate, public administration and residential segments;
• rather granular (with several exposures distributed in a variety of sectors);
• concentrated in a specific territorial area.

Performance indicators for dunning management

The data related to dunning management in the sector generally confirm an overall trend that reflects the negative economic situation and the effects of the crisis that has affected the economic and financial system in recent years. 

According to the XII report of UNIREC on Credit Protection Services presented during this year’s Digital Conference, the Utilities and Telco, Financial and Banking sectors still record important numbers regarding the number of cases entrusted. The practices of the Utility sector mark a growth of 20% of the value entrusted. As for the Third Party Account Transferee almost half of the practices at the number level is related to the Utility and Tlc sector while 64% of the amounts concern banking practices (up 55% compared to 2020).

Main risks: arrears and credit switches

Aspects of fundamental importance for credit managers working for energy or utility organizations are certainly those related to debt collection performance. Among the critical issues that can slow down the dunning management process, we find: 

• increased delinquency both in the residential sector and in small- to medium-sized enterprises;
• the switch phenomenon, which shows customers switching from one supplier to another and risks paralyzing the recovery of outstanding amounts for bad payers. 

Among the unpaid bills are mostly those that have a large impact on the financial situation of the creditor company, which must invest time and resources to manage a long and complex pre-litigation phase (e.g. disputes, complaints, and settlement requests) and at the same time prevent the debt position from worsening further.

Another issue that is becoming a priority in the open and increasingly crowded utility world concerns the reasons that can push a customer to abandon a supplier (churn). These reasons include: the increase in prices and tariffs, the lack of recognition of the company’s brand identity, and some physiological dynamics of competition. It may also happen that a user who was a “bad payer” had a negative experience during the debt collection process, and decided to change companies.

In order to improve retention and increase loyalty, it is necessary to take a customer-centric approach from the outset, an approach that must also be applied to the operations of the dunning management process, determining the form and content of the languages used in communications with customers (for example, the way that bills, reminders, and invoices are created and distributed).

Actions to be taken for new credit governance

Utility companies can improve their performance in reducing outstanding receivables by developing and implementing an integrated credit management plan that is structured into specific collection prevention and management operations. It is then the quality of customer care services, as well as other initiatives with deep social significance such as those concerning debt, that companies can easily gain or lose customers and therefore image, revenue, and market positioning. The following actions can ensure effective management of the credit collection process:

1. use analytics tools, for: 

• to better know the audience of users, organizing it into segments and coherent clusters,
• keeping track of the activities to be carried out and managing all activities related to contract expiration
• act promptly to reduce the collection time,
• centralize information on customers (personal data, contacts, invoices, documents, actions taken, and those still to be carried out), so as to reduce the start-up time of recovery activities,
• follow and document credit control and monitoring procedures with continuous reporting on collections and a synoptic view of the actions carried out and those still to be planned;

2. automate processes, streamline procedures, eliminate the downtime typical of manual activities, allow resources to be relocated to activities of real value, intervene promptly in insolvency situations. Digital tools allow you to:

• monitor the customer situation in real time, 
• provide alerts and send multi-channel reminders for when the bill is due,
• send the necessary communications (due dates, for example) at scheduled times, thus activating recovery processes;

3. enable cross-functional teams to involve all relevant departments (marketing, sales, administration and sales, legal, debt collection agencies) in credit governance, thus eliminating critical issues due to misalignment between business functions.

How a digital culture can foster change for the utilities sector

The integrated plan we mentioned above can only be implemented if it is preceded by a profound transformation in the company’s culture. Digitization can bring enormous benefits in terms of simplifying processes and development of a new type of relationship, one that is more personal, with the customer only if first a whole system of values that are flexible, transparent, and sustainable, is introduced at different levels of the organization.

The Covid-19 emergency has pushed utility companies to accelerate the path to digital transformation, acquiring the tools and know-how necessary to fully exploit the potential of innovative products in a short time. The adoption and enhancement of different digital channels and tools such as apps and dynamic bills has allowed for the following in an extremely complex historical period:

• maintain the continuity of relationships with customers, who have thus been able to access information in a simple and fast way and see the possibilities of interaction expand, thanks to the use of different digital services (such as online remote payment methods);
• develop dedicated offers and services through personalized communications for each individual user;
• reduce operating expenses by up to 25%.

Enrico Celotto, Doxee’s Chief Marketing Officer, commented on the strategic choice of dematerialization made by particularly far-sighted utility companies: “Digital transformation is no longer an option, but an essential condition on which to base business growth in the coming years. The valorization of a fundamental asset such as customer data comes through these processes and enables business models — once unthinkable before now — that today are a source of double-digit growth for the Utility sector.”

The most shrewd credit management in the sector has already identified digitization and personalization, which is the ability of digitization to help companies establish meaningful relationships with customers — as the key to access a privileged, more effective, and inclusive communication system.

Personalization strategies for the utility sector

Even in the case of dunning management for utility and energy companies, the most successful digital strategies are those that are moving toward increasingly complete personalization. Through accurate, profiled, and interactive credit collection solutions, it is possible to create customer care services tailored to the individual, in a one-to-one dialog, which offer great potential for even more solutions. 

Personalization strategies, for example, can enrich touch points with features that are useful to the customer and valuable for the company. The challenge, in this case, will be about establishing and living a consistent public image while overseeing all available channels (email campaigns, mobile apps, social presence), and developing ad hoc technology tools capable of responding to precise practical needs, such as, for example:

• reaching the customer in the most timely moments and in the ways that best persuade them;
• provide all the necessary information;
• helping the customer proceed with payment of an outstanding debt, enabling him to resolve his debt situation in a simple, transparent, and respectful way.

Managing outstanding payments in the utility world: two original Doxee solutions

For dunning management in the utility market, therefore, advanced solutions are needed that can transform the perception of threatening and ambiguous communications into a more open and conciliatory dialog. In this sense, the old bill or the dreaded reminder can be a moment of confrontation and represent the beginning of a conversation. Bills and reminders can be transformed into multimedia and interactive tools when communicated through video, for example, and even better if personalized. This is the case of made to measure, omnichannel videos by Doxee Pvideo®  that are sent to each customer. The customer thus benefits from a detailed and clear explanation of the content of the reminder and all items of expenditure, from any device he prefers. The customer can also view his history and decide to pay directly, with a simple tap. 

Doxee Pweb® is another original Doxee product that offers a precise solution to the needs of the utilities sector: a personalized microsite that is generated and distributed for each customer following the billing frequency and using data from CRMs or other internal systems. The microsite can contain consumption data, indications to optimize customer spending, as well as access to customer care and loyalty processes implemented by the company. The microsite can host a PDF copy of the bill or reminder, in compliance with the legal requirements for these types of documents, avoiding any problem of compliance with regulations and with the possibility to close transactions directly in the Doxee Pweb® microsite.

Doxee has been collaborating for years with leading companies in the sector, and it was featured by CIOReview magazine in its 2018 list of the 20 most promising technologies for the world of Utilities, confirming in 2020 as a benchmark of utilities for rapid adoption of digital.