Credit risk management and collections Part 2: Lifecycle credit risk
Jul 01, 2020
Lifecycle Credit Risk
Last month we focused on financial vulnerability in our series of articles about effective Credit Risk and Collections Management, and how it can help determine which companies are best placed to manage a downturn.
This month our focus moves to lifecycle credit risk, with a focus on B2B due to current market conditions.
Credit Risk and Collections
The difference between collections and credit management is often misunderstood or the activities of the two are mixed.
The collections team are responsible for debt follow up processes, dealing with customers as they enter and exit the debt book, and everything that happens in between.
Effective collections form a key part of effective credit management, but managing credit risk well means applying a risk management methodology across the whole of the customer journey and all business activities, with the aim of preventing bad debt.
How freely customer service staff can apply ex-gratia credits for service issues, what the DD adequacy policy rules are, back billing policy and the launch of new products to target certain customer groups are all examples of potential bad debt exposure.
Using Data is key
Across the customer lifecycle there are numerous points at which data can be used to support credit risk management.
A new entrant energy company’s customer acquisition strategy may not take account of credit risk, which means that initial growth may not drive the expected value. Introducing credit checking and applying terms to customers is important, but often no consideration is given to change of tenancy.
The average change of tenancy introduces greater credit risk to an energy company when compared with a change of supply, but it is rarely given management or operational focus in terms of developing a controlled process that verifies customer details. In the B2B market, customers can move in, move out, rename themselves and change entity, all without notifying the energy company.
This leads to time periods where consumption has occurred, but where the occupier was incorrect or not known, creating bad debt exposure.
There is a wealth of data available to help. Companies House provides detailed data about a company’s status, including information on whether it is about to be dissolved and a write off may be coming. Google is a hugely useful tool in monitoring non-ltd businesses to see that they are still trading from the supply premise, under what name, and what their opening hours are to allow targeted contact.
Utility companies have used data for years to identify changes to their customer bases, but making use of the data can sometimes be tricky or limited by resource constraints.
Imagine a cafe bar in debt, who isn’t responding to automated collections reminders. Google could be used to inform you of changes to their trading hours, telling you that they are now open all day, not just in the evening. Further, instead of someone having to sit and enter the property details into google to find this out, imagine that information automatically hitting your billing system as google is updated, and prompting an outbound collections call in working hours. Wow.
The integration of reference data into CRM systems and workflows can be a hugely powerful tool, and the number of APIs available these days open up some exciting possibilities.
At ENSEK we’re on a mission to remove the complexity of the energy industry and let suppliers focus on what really matters – their customers.
We have a team of experts who specialise in debt management and payments. We work with you to understand your challenges and the needs you require to manage these processes.
If you’d like to understand more, click the link below and get in touch.
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