Debt management: made to measure


The introduction of the Water Act in the UK in 1999 meant that the water industry lost the right to disconnect domestic customers for non-payment of bills – prior to this, water companies relied upon the threat of disconnection as a way to enforce customers to settle their outstanding bills. Consequently, once the Act came into force, water companies needed to significantly change the way in which they dealt with unpaid invoices.

With the introduction of the resolution on the ‘Recognition of the Right to Drinking Water’ in the member states of the European Union, this loss of disconnection will be rolled out across Europe by 2007, in an effort to harmonise European legislation. It is also anticipated that other utilities such as electricity and gas will lose the right to disconnect domestic customers for non-payment of bills.

According to regulator OFWAT, water companies in the UK are currently owed £779 million through bad debts – and this is only part of the story. Debt is a huge problem nationally in the UK as a result of the massive rise in consumer credit. Coupled with the fact that various bodies, including the Citizens Advice Bureau, now rank the ‘water bill’ as a non-priority debt because the ultimate threat of disconnection has been removed, it is becoming increasingly difficult for water companies to reclaim their share of the debt mountain.

As a result, water companies across the UK have had to re-assess the way in which they communicate with their customers. Instead of waiting until a customer has defaulted on his payment, they are increasingly looking to establish a preventative culture and create a working relationship with customers by identifying their individual situations. It’s no longer about a one-size-fits-all approach to managing debt, but instead about identifying a customer’s individual situation and developing a strategy accordingly. By getting to know the customer, companies can identify potential problem areas early on in the relationship.


In the finance industry, companies are well versed in developing various debt management strategies and tactics to understand customers and manage them accordingly. The advent of the ‘sub-prime’ market means that finance companies have lent money to a wide crosssection of the community who, traditionally, would not have been able to get finance. Many of these organisations
employ very proactive collections policies, even to the point of telephoning  sub-sets of borrowers prior to the first instalment to ensure everything is ‘OK’.

This approach adopted by the finance industry has several transferable qualities for the utilities market, which can be demonstrated through Yorkshire Water’s implementation of an effective strategy for managing late customer payments.


When Yorkshire Water looked at its strategy to mitigate the loss of disconnection, it wanted to look outside its industry to use some of the techniques employed in the banking and finance market. It concentrated on three areas:

• Systems
• Staff Training
• Recruitment/Department Structure.

Yorkshire Water’s IT systems and business processes were all geared towards the court process, where a failed judgment was required before a disconnection/severance notice could be used. Although very few customers were actually cut off – only 150 households were disconnected out of a customer base of 4.5 million customers, across 1.8 million households – the disconnection notice was seen as an effective tool. This meant that the systems and procedures were geared towards getting large volumes of accounts from A to B as quickly as possible. If this was to change, then additional information was required to be able to use more subtle strategies and measure a customer’s willingness and ability to pay. This meant that the collectors needed to be able to ask the right questions and control telephone calls to make sure that the relevant information was forthcoming, and where appropriate, promises to pay were obtained and managed.

Yorkshire Water felt that help from outside the water industry was needed, so it recruited key staff members from the banking sector, instructed a training company from a banking background, and employed Target to look at the IT systems requirements. This led to a number of changes being implemented prior to the loss of disconnection in 1999. By implementing improved IT systems and customer service procedures, Yorkshire Water has been able to segment its customer base according to a customer’s individual characteristics. Through automating some of the mundane tasks, collectors are able to spend more time actually communicating with customers. This has meant that a customer’s willingness and ability to pay can be measured by recording their income and details of outgoings online. These details are then used to arrive at a suitable arrangement that is agreeable to both the customer and the company.

This level of customer information has also enabled Yorkshire Water to segment customers claiming unemployment benefit from the state, and has maintained a steady level of payments directly from the Department of Work and Pensions since the loss of disconnection. A number of effective enforcement techniques are now used:

• One method is to obtain money from the customer’s employer on a monthly basis through the courts – known as an Attachment of Earnings1. By collecting employment details, an Attachment of Earnings has proved to be an effective enforcement strategy, with increases of 3,500% in revenues from this method of enforcement since 1999.
• In addition, the high degree of automatic follow up, for example when a promise to pay is broken, has enabled Yorkshire Water to achieve a ratio of 1 user to 4,000 accounts. This is one of the best in the water industry, and is as good as or better than some unsecured finance collections departments.

Recently, the company has seen added benefits through automating decisions to issue court proceedings. By using the data available through its existing system, and combining this with Equifax credit data, 95% of decisions to sue are now made by the data management system, eliminating the need to review each account separately. Jonathan Harding, Head of Credit Management,

Yorkshire Water, says of the system, “The claims are much quicker and more accurate than previous manual decisions.” Yorkshire Water seized the opportunity to review how it collected overdue payments before the loss of disconnection in 1999. This enabled the organisation to challenge what it had been doing, and evolve before the Water Act came into force in 1999. In fact, Yorkshire Water set up its customer services and collections department as a separate customer management company, Loop Customer Management, and turned a cost centre into a profit centre by attracting new customers who wanted to use its innovative techniques.

According to OFWAT figures, Yorkshire Water currently has the lowest outstanding debt per household and the second lowest cost to collect.

Debt is a huge problem in the UK, and is one of the most complex challenges that a utility has to face. With levels of consumer debt continuing to rise, it is even more important that companies within this sector adopt proactive techniques to manage their customer base. The business benefits are clear: implementing appropriate IT and customer service systems and enabling operators to make early contact with customers using tailored strategies can help companies take appropriate action to avoid serious
difficulties and maximise income.

1 Attachment of Earnings – a legal enforcement that enables the creditor to recover money directly from the debtor’s wages.