Early intervention delivers a win-win for the energy retailer and the customer.
The Australian energy market is facing a growing challenge: rising energy costs and cost of living pressures are pushing a significant number of retail energy consumers into debt. According to the Australian Energy Regulator, household electricity debt reached $1.7 billion in 2022, with an average individual debt of $800. This rising tide of unpaid bills poses a significant risk for both energy retailers and their customers, with far-reaching consequences if left unchecked.
Early intervention is key to mitigating the negative impacts of energy debt for both parties. When customers fall behind on their bills, the consequences can be severe. Disconnection from essential services like electricity can lead to significant hardship, impacting health and well-being. Additionally, late payments can negatively impact credit scores, hindering future access to loans and other financial services.
For energy retailers, unpaid bills translate to financial losses and operational challenges. The longer debt is allowed to grow, the more difficult it becomes to recover, potentially leading to bad debts and write-offs. Additionally, managing defaulted accounts requires increased resources, diverting manpower and resources from other areas of the business.
The case for early intervention
Identifying and engaging with customers facing potential debt at an early stage offers significant benefits for both parties.
For energy retailers[i]:
- Reduced bad debt: Early intervention can increase payment collection rates, significantly reducing financial losses from uncollected debt.
- Improved customer relationships: Proactive engagement and support can prevent frustration and animosity, fostering stronger customer relationships and minimising churn.
- Enhanced brand reputation: Demonstrating a commitment to helping customers manage their bills can boost brand image and attract new customers.
- Financial assistance and options: Early intervention allows for more time and flexibility to develop personalised payment plans and access financial assistance programs, preventing stress and potential financial hardship.
- Debt prevention and education: Proactive communication and support can help customers understand their bills, manage their energy usage, and avoid falling into deeper debt.
- Improved access to essential services: Timely collections efforts can prevent service disconnection, ensuring uninterrupted access to critical energy services.
Consequences of delayed action
Ignoring the issue and delaying collections activity can have detrimental consequences for both parties. Retailers face increased bad debt write-offs, impacting their financial performance and potentially leading to higher tariffs for all customers. Customers risk accumulating late fees, facing service disconnection, and damaging their credit scores, further hindering their financial well-being.
Investing in early intervention
Early collections intervention doesn’t involve aggressive tactics. It’s about building trust and offering support through[ii]:
- Proactive communication: Timely notifications about payment due dates and potential overdue penalties.
- Personalised payment plans: Flexible options tailored to individual circumstances.
- Financial assistance resources: Connecting customers with government or community programs for support.
- Open communication channels: Providing accessible avenues for customers to discuss their situation and seek guidance.
By adopting this proactive approach, energy retailers can fulfill their social responsibility to vulnerable customers while safeguarding their financial health.
The clock is ticking on Australia’s energy debt crisis. Early collections intervention isn’t just a sound business practice; it’s a win-win situation for both retailers and customers. By fostering open communication, offering support, and taking action earlier, the energy sector can navigate this challenge, ensuring affordability, sustainability, and a brighter future for all.
At SmartMeasures we are helping our clients to get in early with collections intervention. If you would like to know more, get in touch.