Cleansed portfolio to deliver a £2m upside

Ross Bern - 06/12/2023

For Utility companies, understanding the value of your debt is key.

Do you know the value of your Debt? Although debt is an asset on the balance sheet, too much customer debt is a serious indicator of technical and operational challenges.

Utility companies face the further challenge of driving debt collection in a sector that is known to have data issues, exacerbated by historical billing system migrations and poor collection rates relating to aged debt.

We supported a client to unlock the potential in their debt book using our data skills and industry knowledge.

Background

In August 2023, our data analysts were engaged by a UK Water retailer to estimate the amount of debt related to leakage, to segment their aged debt portfolio by debt age, and to suggest an enduring method of dealing with suspected leakage. At the start of the engagement, our client was intending to proceed with a pence-in-the-pound debt sale for its entire aged debt portfolio; the best offer on the table at that time was not attractive.

Using our data modelling expertise alongside our deep industry knowledge of the retail and wholesale arrangements in the UK water market, the Clyde Ventures team was able to devise a new strategy for the aged portfolio which would maximise returns.

We quickly identified that:

• Although the value of debt due to leakage had been overstated, the overstatement was not as large as our client had initially feared – the Clyde Ventures team was able to give a confident estimate of 6% overstatement, a considerable reduction of our client's own initial in-house estimate of 30%.


• 20% of closed accounts were linked to active customer accounts.


• The current thresholds used to detect high consumption / potential leakage had been set too high – leading to opportunities for early investigation being missed.

What did we do?

Based on our findings we delivered in three main areas for our client: our revised segmentation of the debt file recommended new debt collection strategies; our leakage detection algorithm reduced the amount of debt that would need to be written off as potentially due to leakage; and, our leak validation analysis suggested that high consumption / potential leakage thresholds should be revised downwards by 20%.

In our 8-week engagement we:

• Improved historical data by splicing reading data into invoice data - information which had been lost during migration.


• Improved the data quality of the debt file with the aim of reducing customer queries and improving collection rates.


• Revised the leak detection / high consumption thresholds implemented in the new billing software to allow earlier detection of leakage.


• Re-segmented the accounts allowing an additional 18% of the portfolio to undergo collection activity.


• Delivered a fully segmented debt portfolio with distinct collection approaches recommended for each segment.

From our approach it emerged that an uplift of potentially £2.3m was available to our client, representing a potential £2m improvement on their initial strategy of proceeding with a pence-in-the-pound sale.

With our combination of data expertise, very thorough understanding of utilities customer and billing data gained over many years, and our operational experience of managing collections and recoveries, Clyde Ventures can help you to unlock the potential of your debt: with Clyde Ventures, you'll know the value of your debt.