Relax, Grab Some Coffee, and Launch Prepay
Prepay is still the best way to manage bad debt. But it’s a whole lot more than just that. And what’s even better, you can launch prepay with little or no risk.
Even in a rebounding economy, low-income customers are struggling to keep up with their energy bills. In fact, according to the American Council for an Energy-Efficient Economy, low-income households spend 7.2 percent of their earnings on utilities – more than three times the 2.3 percent average among middle- and upper-class families.1
In addition, utilities continue to contend with bad debt. Revenues have risen, but energy companies worldwide have experienced a 4 percent compound growth in relative debt over the last five years.2
That debt invariably hampers growth, and collections present administrative costs that are often higher than simply writing it off. In competitive deregulated markets, charging higher rates to all customers isn’t exactly a viable option, either.
The solution? Prepay. With a flexible prepaid billing program, your customers can manage their energy spend on a weekly, even daily basis. If they are new to prepay, they can leverage their utility deposit to pay down debt. At the same time, utilities can cost-efficiently collect on debts that would have otherwise been written off.
Following are just a few more ways that a prepay program generates a win-win scenario for energy providers and customers:
Empowers Customer Choices
Prepayment also prevents the pile-up of collection and shut-off fees, empowering customers to get out of their cycles of debt. Likewise, paying ahead of time encourages customers to proactively manage their energy use, since funds left over at the end of a billing cycle will roll over and allow for faster payment of other bills and debts.
For this reason, prepay appeals to a wider audience than delinquent and high-risk customers. Today’s consumers are using prepaid phones and debit cards in droves to control spending, and in a smart metering environment, prepaid utility billing is just as simple. Prepay is particularly popular among the millennial market: 60 percent of 20-to-34-year-olds earning six figures report using prepaid cards.3
Creates More Manageable Balances
Shutting off power does little for providers or customers, and depending upon the region and time of year, regulations may prohibit turning off service due to weather conditions. When a customer has a backlog of bills, a better path for both parties is a combination of prepayment, debt installments and frequent billing. Weekly or bi-monthly payments are more manageable for paycheck-to-paycheck consumers, and prepayment presents opportunity for roll-overs, savings and faster paydown.
Presents Multiple Payment Options
There’s more than one way to implement prepay, and with the right billing solution, a provider can offer a variety of flexible plans. In many cases, high-risk customers in arrears will pay lump sums that eliminate their debt and create positive account balances. They’ll be notified when their accounts dip below a certain threshold, and even in the worst cases, a few days – rather than months – will contribute to a negative balance.
For customers who can’t afford a lump sum, utilities can just as easily offer deferred and proportional payment plans. Negative balances can be given separate payment schedules, and either a fixed amount or percentage of each prepayment will be automatically applied. This type of plan is particularly helpful for customers who fall on hard times, and for providers in regions where temperatures are too high or low for shut-offs.
Provides Flexible Implementation
Although prepay offers many benefits, few providers are in position to immediately overhaul their billing systems to implement this type of payment option. Fortunately, with a flexible solution such as SmartGridCIS, prepay can either be deployed as a stand-alone system, or easily integrated with an existing legacy billing solution. This is true for both regulated utilities, as well as deregulated retail energy providers.
The strong benefit of a stand-alone deployment is that energy providers can launch prepay programs as a pilot, or soft-launch, with small subsets of customers. This reduces risk by allowing them to first gauge response, understand payment and communication processes, make adjustments, and ensure employees are well-trained before offering it to a broader population.
Delivers Reliable Cashflow
Ultimately, the bad debt reduction from prepay can allow providers to cut collection costs and improve cashflows – all the while making it easier for customers to pay their bills. For retail energy providers, this means more sustainable growth, wider margins and a competitive advantage. For investor-owned utilities and cooperatives, it means greater returns to investors and members.
Seamless Prepay Integration with a Smart Billing Solution
To implement prepay quickly, cost-effectively and with minimal disruption to regular operations, you’ll need a flexible and proven solution. So, if you’re ready to pilot a prepay program, consider partnering with SmartGridCIS, the leading provider of high-performance billing software for utilities and energy providers. To speak with one of our specialists and view a demo of our solutions, contact us through our website today, or e-mail jbastian@smartgridcis.com.
[1] ACEEE, Report: “Energy Burden” on Low-Income, African American, & Latino Households up to Three Times as High as Other Homes, More Energy Efficiency Needed. http://aceee.org/press/2016/04/report-energy-burden-low-income
[2] PWC. Pressure in the system: Working Capital Study. https://www.pwc.com/gx/en/working-capital-management-services/assets/working-capital-opportunity-2017-2018.pdf
[3] Federal Reserve Bank of Philadelphia, “Millennials with Money Revisited: Updates from the 2014 Consumer Payments Monitor.” https://www.philadelphiafed.org/-/media/consumer-finance-institute/payment-cards-center/publications/discussion-papers/2015/d-2015_millennials-revisited.pdf?la=en
