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Credit Management meets computer automation

A necessary balancing act. A risky business

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The automation challenge

All of which brings us full circle to automated systems. It doesn't help when the process - as at Derby Council - is flawed. However, computer automation can impact quite negatively on the customer relationship if the process automated is, itself, ill thought-out.

We spoke to nPower, who are the UK's fourth largest supplier of power and have occasionally found themselves hauled across the coals for what is seen as insensitive treatment of their customers.

Their current approach perfectly illustrates the issues faced by major companies seeking to manage credit on a more intelligent, customer-focused basis. First, they have an issue with customers who are potentially risky - not least those fleeing another supplier with sums still outstanding for electricity and gas supplied. Because they provide a commodity that is seen as a necessity, they are less able than some companies to turn down customers: Providing an individual's pre-existing debt does not exceed £200, they are not allowed to reject them.

However, they are obliged in some circumstances - such as where an individual lives in a property managed by the National Housing Association - to insist that they use a pre-pay meter. This, until recently, opened nPower and other suppliers to accusations that they were penalising their poorest customers. But in the last year, despite the fact that pre-pay costs more to provide, the tariff has been equalised to that for standard quarterly payments.

Customers who pay by direct debit are still better off than those who pay on a regular basis - although the benefit of this approach is not quite as clear-cut as might be presumed. Direct Debits are set to a level that should match overall usage of power during a year: At some points in the year, customers may be in significant debt to nPower, which means that the supplier is effectively subsidising customer tariffs.

At the end of each year, historic usage is compared to what the direct debit is generating and, in some cases, a fairly major adjustment may be necessary. This is because, where adjustment is necessary, there will almost always be two components to that adjustment.

First, there will be an adjustment to the regular payment. And second, an adjustment designed to make up for under-payment in the previous time period. If someone has underpaid by, say, £600 in a year, they will need to adjust their direct debit to generate an additional £1200 in the next year. Combine this with price rises and it is hardly surprising that there is a public perception - adamantly rejected by nPower - that direct debit is used as a means to extract additional value out of customers. nPower may be correct in their assessment of the arithmetic of this issue - but they should guard against leaving such sensitive changes purely to automated systems.

Then there is the reminder notice. Some years back, chasing of unpaid utility bills was a very laid back affair, with first reminders sometimes appearing a month after the due date for payment. Now, a first reminder may be as little as ten working days after the due date for payment, with red letters appearing a week after that.

The tone of such letters can be quite distressing - particularly to pensioners brought up to a gentler regime - and the insult is compounded where the system is in error, or payment has crossed with the reminder. nPower recorded messages inform customers that it can take up to ten days for a payment to clear their system - which begs the question of how much damage they are doing to customer relations by reaching for the threatening letter so quickly.

A spokesman for nPower told us that there are around nine levels of reminder before a serious intervention. He added: "on every occasion nPower would prefer not to intervene and would prefer some customer contact and arrangement rather than action."

nPower also support community initiatives, helping individuals locate benefits that can help them with payments and nudging people towards easier payment schemes.

Whilst the current regime is far from the best practice proposed by the ICM, this should be changing soon. New systems due to go live in the next 12 to 18 months will give nPower the ability to implant more sophisticated credit modelling techniques within their follow-up. In theory, they will be able to identify those likely to be fearful when sent a debt letter and take a gentler approach with them: Also, they should be able to identify those most at risk of defaulting and tailor their action, both message and medium, to the target group.

In the long run, all this may be irrelevant, as experiments are currently under way with smart meters which will make it economical to introduce pay-as-you-go for the majority of their customer base. In theory, the meters will be so smart that, if unusual power usage patterns are detected, they will be able to generate helpful messages to the property owner - like "have you left your lights on?" - via mobile or online.

At the end of the day, credit management remains a very difficult area. It is about finding balance between value and risk in the customer: At the same time, it requires treating customers appropriately, neither so lightly that bad habits set in, nor so harshly that they look for alternatives. In this respect, predictive modelling combined with computer automation can be either blessing or curse. Done well, it deepens relationships and safeguards the bottom line. Done Badly, it will almost certainly achieve the opposite effect. ®

The smart choice: opportunity from uncertainty

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