The strategic approach to debt management in the telecommunications sector

Transcription

1 The strategic approach to debt management in the telecommunications sector An Experian white paper by Dan Scholey, Decision Analytics, Experian May 2008

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3 Executive Summary By seizing opportunities to make collection processes strategically effective, operationally efficient and customer orientated, an organisation s collection function can add significant value to the business. Telecommunications operators have faced increasing pressure over recent years to grow the subscriber base in a highly competitive market, only to find that their customers have been able to switch between providers, leaving their debts behind and making customer churn a significant challenge. Added to that the growth in third party content and the losses from bearing those costs, and it is clear that debt management is becoming a key driver for telecommunications operators. Operators who take a strategic approach achieve a significant reduction in the cost to collect the higher volume, lower value debts that are typical of this industry and, at the same time, reduce the levels of churn. The benefits of adopting a strategic approach to collections This approach will optimise collections by: Maximising profit by increasing the recovery of cash collected using efficient automated strategies and actions Improving cash flow by ensuring earlier recovery of debt Reducing costs through improved automation of decisions, actions and the use of best practice collections techniques Increasing customer retention through debtor rehabilitation and management by profiling the debtor and using the most appropriate collection technique. Ensuring rapid ROI by utilising an agile deployment and optimised ability to further enhance the solution The aim is to enable a rapid reaction to changing customer needs and market demands, as well as managing portfolio growth. Increasing the effectiveness and efficiency of the collections process results in a strategy that allows profitability to be optimised. The strategic approach to debt management in the telecommunications sector

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5 Contents 1. Introduction 4 2. Understanding the reason for delinquency 5 3. The collections process 6 4. Adopting a strategic approach to collections Policies Operational Enhancements Technology Integrating the solution Decision Analytics debt management About the author About Experian Decision Analytics 15 The strategic approach to debt management in the telecommunications sector 3

6 1. Introduction Rapid growth in the telco market has led to a number of operators enjoying a very large subscriber base but who, inevitably, also support a high level of delinquent customers. Mobile operators who were doubling their subscriber base every year could afford these high levels of bad debt write-off because, high as the figures were, they were masked by the much greater growth in sales and profits. Meanwhile, fixed line operators and incumbents who, in a monopoly environment were able to use the threat of disconnection to ensure payment, suddenly found that their customer base was able to switch to alternative providers, leaving unpaid bills behind. Whilst traditional debt collection methods employed by operators in the form of mail and phone communications, followed by contract cancellation and disconnection, are no longer viable in today s market where customers can easily switch between providers, leaving a trail of debt in their wake. Growth in third party content and losses from bearing these costs in addition to the lost revenue means that telecommunications operators are facing escalating write-off amounts. This has led to increased pressure on the debt management operation to recover these outstanding amounts. The result for many telecommunications operators, is an ineffective debt management infrastructure borne out of a fast growing subscriber base, without implementation of the more sophisticated systems and processes that can handle the complexity of the high volume low value debts typical of this industry. These operators, who have failed to update their revenue collection processes in line with deregulation, are now paying the price. A coherent debt collection strategy is lacking amongst many of these operators, and yet a co-ordinated and streamlined approach is proven to increase post-paid arrears collection. Figures 1. Estimated revenues lost in each region Source: SubexAzure Operator Attidues to Revenue Assurance 2007 Furthermore, modern collection systems enable operators to take a personalised approach, even amongst a large customer base, to encourage future customer loyalty. 4

7 2. Understanding the reason for delinquency Before decisions can be made on the collections action appropriate for a particular delinquent customer, it is vital to understand that the reasons for delinquency differ, and these need to be handled in different ways. To determine the reason for delinquency, analysis is carried out on the behaviour patterns leading up to the point of delinquency. Experian has developed risk based behaviour scorecards that provide a powerful prediction of future customer behaviour. Combining these scores with segmentation based on account usage helps to determine the likely cause of the delinquency. To improve the delinquency patterns, operators should proactively ask their customers why they are having payment problems and capture their response; this provides a useful decision driver for the next steps to take. Delinquency type Example profile Payment pattern Can t pay or won t pay? Beginner First time user Rapid spend as soon as service available. Poor management of financial matters Lazy payer Overindebted Major trauma Disorganised. Not very financially astute. Probably unaware of the penalty fees and implications of non-payment Have spent much time in and out of delinquency. Knows the systems well. Normally only acts when pushed into repayment Sudden reduction/ loss of income, or significant change in lifestyle: new baby, divorce, etc. Can be proactive in wanting to highlight problems before they occur Manual rather than automated payment mechanisms. Occasional delinquency Regularly delinquent. Only paying one overdue bill at a time. Overextended in other credit products Often demonstrate very good payment behaviour, but this can deteriorate very rapidly Typically will pay until they over-extend on bill values Typically will pay until they over-extend on bill values Contains both Can t pay today Table 1. Examples of typical reasons for a customer becoming delinquent. The strategic approach to debt management in the telecommunications sector 5

8 3. The collections process There are three fundamental stages within the collections process. Firstly, before customers become delinquent, their behaviour can help identify similar customers who are also at risk of slipping into arrears. Identification and treatment of such accounts is very sensitive (the customer has done nothing contractually wrong) and this stage in collections is referred to as the pre-delinquent period. Setting and monitoring shadow limits on total bill value and watching for unusual usage patterns are typical activities of this stage of collections, where it may be appropriate to request an interim payment or limits. Secondly, when a customer actually becomes delinquent, the focus of activities is to find methods to help the customer pay the arrears and bring the account up to date. This period is referred to as early to mid arrears. Typcial activities in this period might be a series of automated reminders, a reduction in service provision or even a call diversion to the collections department. When a customer continues to ignore requests for repayment and becomes increasingly delinquent, the third stage is reached, which is when a decision is made to terminate the relationship and to try and recover the full outstanding balance, which are the late arrears and recoveries stages. Figure 2.The debt management timeline 6

9 Stage Pre-Delinquent Period Early to Mid Arrears Late Arrears Business objective To prevent delinquency occurring, by setting limits to give the customer manageable payments To retain good customers by assisting them in resolving their debt in the quickest time possible whilst still providing excellent service. Customers unlikely to recover are accelerated through to the late stage To collect as much of the outstanding debt with the least cost. Some accounts may be retained in-house while others are assigned to a third party collections agency. Again, the objective is to recover as much of the debt in as little time as possible Table 2. The stages and objectives of collections The strategic approach to debt management in the telecommunications sector 7

10 4. Adopting a strategic approach to collections The key objective for operators is to rehabilitate high value customers in order to generate future revenue from usage and the purchase of additional products and services. Specialist collections systems collect outstanding debt quicker in order to rehabilitate customers, reduce churn and gain increased revenue from customers who are cured to buy additional products and services. There are 3 key areas where operators can make a difference: Policies Operational enhancements Technology 4.1 Policies Provisioning A key element of modern collections solutions is the automatic and manual provisioning that can be achieved, so that suspension, termination and re-activation, barring and debarring and throttling and download restrictions can easily be applied to accounts to both encourage and reward payment. Risk based prioritisation A specialist collections system will profile the entire customer base, not just those in arrears, in order to accurately assign a risk score to each account. This enables the Collections Manager to take a wide range of behavioural and payment information from internal sources such as the billing system or CRM system and combine it with behavioural data from the collections system to build profiles of the entire customer base. High spend The ability to identify accounts that are spending in a manner inconsistent with their previous behaviour enables the elimination of potential fraud, as well as helping to reduce the potential for future over extension. Automated risk assessment can identify the account s previous spend, as well as the customer s perceived ability to pay. Modern systems can then automate the delivery of an SMS notification to customers where an inconsistent level of high spend is identified, or the account can be escalated for manual follow up as fraud prevention. Manual extension of approved spend limits can also be provided which enables levels of comfort to be granted to continue high spend up to a specified limit. Behavioural scoring The data used to create a behaviour score is every piece of available information on a customer, over a period of time. Scoring finely segments the customer portfolio to assign collections priority, and accurately forecast future trends. A behaviour risk score predicts how an existing account will perform over a specified period. The score predicts the probability of mildly delinquent accounts becoming highly delinquent. A behaviour recovery score predicts the percentage of outstanding debt in a highly delinquent account that is likely to be repaid over the specified period. A scorecard uses previous behaviour combined with current arrears to determine priority customers and is a very useful method for prioritising accounts and assigning collections priority. Management and control of external DCAs The services of DCAs are often called upon to collect debt which has aged beyond early stage and into late stage or recovery. They can also provide a useful resource during busy periods in early stage collections. In addition they can be employed to offer out of hours coverage to yield higher collections by reaching customers at optimum times. Modern collections systems which are operated via a standard web browser, enable access to any internet user remotely provided they have the necessary access rights and security clearance. This means that collectors can work from home outside office hours - when many customers are more likely to be available - and still have real time access to all the relevant information. Managing the alloation of all the DCAs through the collections system enables the negotiation of better rates and the allocation of the right debt to the right DCA to achieve maximum recovery. The criteria used to determine the allocation of accounts to agencies can be defined which enables exploitation of the different strengths inherent in different agencies. Modern collections systems can automatically allocate accounts to DCAs, as well as update and then withdraw them once the debt is collected. 8

11 4.2 Operational Enhancements Automation The automation of many standard collections processes underpins efficient collections activity. Manual collection is better suited to high value debt, which carries a higher risk, but automation for early stage collections can streamline the process, resulting in more collections achieved at lower cost. So, automating many standard processes for low value, simple debt releases staff to concentrate on higher value collections, where automation is unsuitable. Dialler A dialler can automate the production of outbound collection phone calls, to eliminate the time consuming process of manually dialling telephone numbers. A good dialler system can provide automatic identification and loading of accounts via call lists, which are connected to the next available member of staff upon completion of each telephone call. Modern systems can generate and download several call lists in discrete campaigns throughout the day which can help to distribute the workload according to available resources and allocate accounts to a time when the individual is most likely to be available, in order to yield higher collections success rates. A major issue facing many telcos with a high volume of delinquent accounts, is ensuring that customer accounts are up to date so that collectors are working on real-time information to avoid contacting customers who have already called the customer service department that day. A modern collections system can help in this area by way of automatically removing those accounts from the dialler in near real time, so that collectors always have the most accurate and relevant data to work with. Skills based allocation Collections Managers can make the most of the different skills within the team by allocating workloads to users based on their skill and knowledge of particular processes. This ensures an efficient collections system with work allocated to the staff most able to work specific accounts. Work load balancing A modern best-of-breed system enables upper limits to be placed on the number of activities automatically generated each day, which can help to prevent call centres becoming overwhelmed. Text messaging is an extremely effective way of generating inbound phone calls, so automating the delivery of text messages to different groups of customers at prescribed times of the day can effectively generate inbound calls which can help to balance incoming workloads against available resources. Generating several files throughout the day, with prescribed delivery times is an effective means of further normalising workloads. Multi-skilled customer service representatives Ensuring that the team is skilled in a variety of different business areas will help to balance fluctuating workloads of different types, to streamline the collections cycle. Unified call centre management An effective approach for managing high volume collections can be the use of customer service call centre staff for early stage collection work, especially for out of hours or inbound calls when the collections department is closed. This can help to reduce heavy workloads by taking early action on delinquent customers, achieved by reaching them when they are most likely to be available. A unified approach can be achieved by careful management of the process, so that the call centre acts as an extension of the collections department. The call centre staff can enter valid arrangements; request a pause in collection activity and communicate the next collection activity to occur in the event of nonpayment. Shadow credit limit monitoring Modern systems can send an automated reminder warning to customers who are nearing their shadow limit to reduce the instances of those customers exceeding their limit. This is again, a useful measure to help in reducing fraud. Specialised collection customer service representatives Populating the team with staff who are highly skilled in different specialisations will maximise recoveries and collections of different types of debt. Collectors who can display an understanding of customer needs and help them to manage their outstanding debt encourages customer loyalty. Displaying empathy with the customer can reduce customer churn and build a stronger relationship in the long term. The strategic approach to debt management in the telecommunications sector 9

12 Predicting workloads To enable resources to be managed effectively it is important to be able to predict upcoming workloads to prevent the department becoming overwhelmed. Identification of upcoming peaks enables the manager to allocate additional resources, or to utilise more of the automatic routes available in a modern collections system, and thus release staff from time consuming manual tasks. Identification of upcoming troughs provides an opportunity to concentrate on activities that had previously been identified as a lower priority. Resource management Modern collections systems enable real-time allocation of workloads by team leaders across their teams and staff can be reallocated across teams easily. 4.3 Technology System scalability The system must be designed to manage high volumes of accounts. Traditional collections systems just collect on delinquent accounts, whilst modern systems handle all accounts millions of them so the system needs to be able to process and manage very large volumes of accounts. Technology platform To meet the demands of high volumes and today s expectations of real-time availability of accurate information, modern systems have significant technology demands. Solutions must also demonstrate the ability to comply with the everevolving policies and strategies laid out by most IT departments. Open standards and modern technologies are seen as a mandatory requirement with the majority of solutions providing browser-based capabilities. Multi-tiered environments, providing the capabilities to utilise the power and speed of UNIX environments and the capacity of Oracle databases, is commonly seen as the norm. Preferred contact channels Telcos are well placed to utilise their own technology, enabling them to contact the customer using channels the customer has stated as being their preferred method of communication. The demographics of the population are changing; today s customers are more inclined to use modern technology to pay their bills, so the payment facilities provided must be reflective of the changing needs of the customer, to make it easier for customers to pay their bills, at a time that suits them, either at home, in the workplace, or even on the move. The benefits of replacing traditional channels of customer contact with modern channels provided by today s technology, particularly in the cases of high volume collections, is the time saved and the efficiency provided to streamline the collections process. Telemessaging Operators have the advantage of being able to utilise their own technology to communicate with their customers. An example is the delivery of pre-recorded reminder voice messages. This can be a very successful method of reaching a large number of customers in one go, using very little resources and cost. This system enables the sender to receive a call results file that indicates whether the message was successfully received, and listened to. The system can then automatically pause the follow up activity for those messages successfully received, to provide time for customers to pay, to perform an alternative collections activity for those who didn t receive the message and to escalate the collections activity for those who successfully received the message and subsequently don t respond after a pre-defined period of time. 10

13 Data across systems In order to maximise the benefits of any solution, a seamless integration to other enterprise systems and processes is a must. Modern integration standards following an Enterprise Application Integration (EAI) framework allows modern collections systems to remain accurate and efficient through simplified information exchanges. Collections systems with an enterprise application integration layer (EAI) enable the system to integrate with all other systems that are applicable to the collections process including billing, CRM and messaging systems, so that the collections system has access to pertinent data from enterprise systems and vice versa. This is achieved through real-time integration and modern technologies such as webservices. Consistency of data and real-time interfacing Modern collections systems enable collectors to work in real time which ensures that account balances are always accurate and collectors are working on the latest and greatest data, a key requirement for large volumes of accounts. External resources Third parties, such as DCAs, require intranet access, intuitive systems and guidance. The benefit of modern systems to allow access to third parties is that the system is web based which provides familiar technology, and on-line help/scripting is easily accessible to guide users. Single customer content manager When information on a customer is updated by all parties in one central place, collectors can be sure they they are always working on the most up to date information. Self cure Many low risk customers will pay bills without any proactive reminder being taken. Behavioural scoring is very useful in this instance by identifying habitual late payers, and delaying follow up activity for these customers. By not following them up, the business saves money by eliminating the communications costs of letters and phone calls. However, if a late payer doesn t pay within the time extension, they can then receive a follow up reminder. Self serve Increasingly, telcos are looking to enable the customer to interact automatically, i.e. self-serve. Modern collections systems enable this by allowing overdue customers to enter proposals for repayment arrangements over the internet. This is a crucial development since it is becoming increasingly important to be able to offer technological solutions to customers to pay their bills. Today s customers are time-poor and if they are to be encouraged to self cure - the optimum solution for the collections department - then they must be offered access to solutions which suit their needs. This means enabling them to pay their bills at home or at work, on the computer, over the phone or via Interactive Voice Response (IVR), all of which can be supported by modern collections systems. The strategic approach to debt management in the telecommunications sector 11

14 5. Integrating the Solution For operators managing a high volume of delinquent accounts it is imperative that their collections process is efficient and streamlined. The battle for operators in today s competitive telecom market is to effectively manage their delinquent customers with a view to retaining them once they are cured in order to gain additional revenue from future usage. In addition, the organisation should be regularly reviewing the commission paid to each DCA for successful collection. Using models to predict the likelihood of recovery allows an organisation to price debts based on the performance of the DCA and the expected outcome. A modern collections system integrates with all the other operating software which is applicable to the collections process, including billing systems, CRM/ customer information systems, document managing systems, messaging systems, provisioning systems and analytics engines. Integrating all the software architecture ensures that collections agents always have access to accurate customer data and productivity tools available to enable fast and accurate decisions. Operators with a large volume of accounts can be at risk of employing too many staff which can result in an uncoordinated approach to the collection of debt. Collections Managers who fully manage and control the employment of DCAs, and who utilise the technology within a modern collections system will benefit from a streamlined collections activity with customers better managed and retained for future revenue. What s more, they can automate more of the manual time consuming tasks and organise the department such that staff are trained in key specialisms to further enhance team performance. 12

15 6. Decision Analytics debt management Effective collections is about the balance between customer service and debt collection, and between recovery cost and debt recovered. Experian offers complete end-toend collections management to help telecom organisations develop a value enhancing debt management environment. Experian has used its collections experience and expertise to combine advanced analytics with sophisticated tools for decision support and workflow management to create a complete Decision Analytics collections package for telecom. It enables organisations to improve efficiency and effectiveness, maximising customer service and reducing both costs associated with collecting debts, and the credit losses written off. The elements include: Prioritisation of collections activity, using behavioural scoring and segmentation to dynamically create accurate and tailored collections activities according to the level of risk and value of the customer Automation, workload balancing and intelligent allocation of cases matched to appropriate collectors Focus on rehabilitation to identify which customers should be retained and to take action that balances recovery with the relationship Agile deployment to ensure the benefits of the solution are realised more quickly Value added solution, implementing a complete debt management solution specifically designed with built-in intelligence for the telecom market Experian delivers industry standard and custom collections solutions in markets all around the world, working closely with customers to tailor it to operators specific business and market requirements. This experience ensures detailed insights into predicting collections behaviour from customer data and the deployment of the best of breed software systems and debt management processes. The strategic approach to debt management in the telecommunications sector 13

16 7. About the author Dan Scholey began his career in software development. He has since gained a number of years experience within the financial services industry. During his career he has played a key role in the development of innovative automated solutions to address specific business issues, including collections management. Recently, he has focussed on strategic debt management to ensure operators maximise the return from automated decision led collections systems whilst maintaining a strong customer relationship. 14

17 8. About Experian Experian is a global leader in providing information, analytical and marketing services to organisations and consumers to help manage the risk and reward of commercial and financial decisions. Combining its unique information tools and deep understanding of individuals, markets and economies, Experian partners with organisations around the world to establish and strengthen customer relationships and provide their businesses with competitive advantage. For consumers, Experian delivers critical information that enables them to make financial and purchasing decisions with greater control and confidence. Clients include organisations from financial services, retail and catalogue, telecommunications, utilities, media, insurance, automotive, leisure, e-commerce, manufacturing, property and government sectors. Experian Group Limited is listed on the London Stock Exchange (EXPN) and is constituent of the FTSE 100 index. It has corporate headquarters in Dublin, Ireland, and operational headquarters in Costa Mesa, California and Nottingham, UK. Experian employs around 15,500 people in 36 countries worldwide, supporting clients in more than 65 countries. Annual sales are in excess of $3.8 billion ( 1.9 billion/ 2.8 billion). For more information, visit the Group s website on www. experiangroup.com. The word Experian is a registered trademark in the EU and other countries and is owned by Experian Ltd and/or its associated companies. About Experian s Decision Analytics division Decision Analytics is the international division of Experian specialising in providing credit risk and fraud management consulting services and products. Over more than 30 years, it has developed its best practice analytical, consulting and product capabilities to support organisations to manage and optimise risk; prevent, detect and reduce fraud; meet regulatory obligations; and gain operational efficiencies throughout the customer relationship. With clients in more than 60 countries and offices in more than 30, the decision analytics division of Experian delivers experience and expertise developed from working with national and international organisations around the world across a wide range of industries and business size. For more information, visit the company s website on The strategic approach to debt management in the telecommunications sector 15

18 Experian The word EXPERIAN and the graphical device are trade marks of Experian and/or its associated companies and may be registered in the EU, USA and other countries. The graphical device is a registered Community design in the EU. All rights reserved.