Four steps that defend a biller's revenue stream

Summary

Billers take steps to minimise their revenue loss addressing both (as yet) unbilled revenue and billed revenue that may become uncollectable (bad debt write-off). These steps include:

Credit Checking: a defensive measure applied with an external focus against prospective customers
Monitoring for Fraud: a proactive measure applied with an external short-term focus against existing customers
Credit Management: a proactive measure applied with an external focus against existing customers based on their ongoing short- to medium-term payment histories
Revenue Assurance: a passive measure applied to a biller's internal systems to test how accurately they reflect the biller's business rules.

Defending the revenue stream

Independent of the prices charged and the use of constructs such as bundles, a biller must ensure their end-to-end billing process is operating correctly and that customers are not taking advantage of the biller when paying, or more accurately not paying, their bills.

Since revenue is only real when payment has been received, the process that starts with a billable transaction and ends with payment for that transaction (post-paid), or prepayment and accurate deductions (prepaid), must be checked for accurate and reasonable behaviour by both billing systems and customers. Billing systems can omit billable transactions or charge for them inaccurately, customers may perform transactions without the intention or ability to pay for them, incurring third-party charges for which the biller will be liable.

If these revenue defending steps are not performed, the biller will be unsure of their systems' accuracy, unable to influence who connects to their systems (and on what terms), will be unable to identify unusual transaction behaviour that could be criminal, and will be unable to differentiate their response to the lack of customer payments.

The following four steps can be used by billers to improve and defend their revenue stream from errors and those customers who would do the billers harm by acts of commission and omission.

Credit Checking

Credit checking is a defensive measure applied to new customers, or existing customers wishing to connect a new, generally high-value, service. The credit check seeks to uncover any issues associated with a customer's 'ability to pay' before the customer can incur charges on the biller's network. Billers apply such credit checks against both individuals (e.g. residential market segment) and against businesses both large and small (i.e. SOHO and corporate market segments).

Details of the customer can be compared against both internal and external credit databases. Internal databases containing detail of historical activities are limited in reach / scope to a biller's previous customers. External credit databases include historical details of other credit-related applications (e.g. mortgage applications, car loans, credit cards, bankruptcies) not easily available to a specific biller.

By not connecting (potential) customers who will struggle to pay, are bankrupt or who have a history of fraud, billers reduce the likelihood that revenue (later to be debt) will be incurred without payment. Where a higher risk is assessed against a customer, the biller may require the customer make a deposit to reduce the biller's financial exposure and / or a lower credit limit may be imposed to limit the customer's possible liability.

Credit checks can also identify low risk and/or high value customers based on their past relationship(s) with the biller. This allows a different (higher) level of service to be granted to these customers over new customers about whom little is known.

Monitoring for Fraud

Customer behaviour when evaluated across the entire customer base will be relatively uniform, especially if allowance is made for different market segments' spending patterns. An individual customer, or more specifically a network service, that exhibits behaviour that is 'unusual' for an 'average customer' and that exceeds the 'normal' variations that occur is a candidate for a closer examination.

For example, a service that watches one or two (downloaded) movies might be considered 'normal', but a service that downloads twenty in a day will be both unusual and suspicious (i.e. there are 24 hours in a day but 20x2 = 40 hours). Market segment thresholds allow the average phone call volume for a residential service to be (say) three per day, whilst also considering normal a small-to-medium business making three hundred calls per day.

A service identified for review may be legitimately performing unusual levels of activity due to family reasons (e.g. party planning, death in the family), business activity (e.g. new contracts won interstate), or calendar events (e.g. Mothers Day, Christmas, Chinese New Year). Legitimate activity can be addressed by higher short- to long-term review thresholds in the fraud system for specific services / customers, and through monitoring of transient calendar-based activity.

Network services deemed to be performing fraud (i.e. incurring transactions without the intention to pay) must be terminated to stop ongoing revenue loss, have details documented for possible prosecution, and (later) pass identifying details of the service's owner to credit databases (if appropriate) to limit the customer's future ability to reconnect to the network.

Prepaid services still need to be monitored for fraud, since where the prepayment was made by credit card the payment may be reversed and/or the card details may be stolen. A reversed prepayment can leave the biller with third party charges that must be paid (e.g. content, interconnect).

Credit Management

Credit management includes three aspects that help defend the revenue stream:

Differentiated processing based on customers' payment histories
Manage the biller's revenue exposure to a customer based on the value of their billed debt and (as yet) unbilled charges
Improved debt recovery based on the ongoing testing of collection alternatives
Bonus: Reduced collection costs based on the comparison of collection alternatives

Differentiated processing - A biller's customer base can be segmented based on their market segment plus their historical payment behaviour. New customers without a payment history can be evaluated as a higher risk than customers with a demonstrated history of 'on-time' payment. Customers who habitually do not pay by the due date can be considered at a higher risk of defaulting, or at the least causing the biller to incur 'interest' costs on their outstanding debt.

When considering what collection activities to perform and on what timeline, customers with on-time payment histories may receive less vigorous collection activities on a slower timeline than customers who habitually delay their payments to the last minute. When due date payments are not made, customers at a higher risk of not paying can be treated more actively on a shorter timeline than those for whom a default is unusual. This approach results in the creation of processing streams (risk profiles) that vary from a very aggressive, short duration timeline for the riskiest customers, to a slow polite timeline for VIP and high-value customers with demonstrated on-time payment histories.

By allowing the credit management process to adjust as customers change their behaviour, on-time payers who begin to delay their payments will be treated more aggressively (punishment), whilst those that begin to pay on-time will be treated with more leniency (reward).

Managing the biller's exposure - The biller's revenue exposure to a specific customer is the sum of their billed but unpaid revenue (i.e. debt) plus the revenue that has been incurred but is as yet unbilled (e.g. prebill usage). The biller can monitor their exposure to a customer, intervening when it exceeds some market segment-specific threshold. Customers with unpaid debt can reduce their exposure by making a payment.

Where unbilled charges cause a threshold to be exceeded, the biller can generate an interim bill and test the customer's intention to pay. The biller's goal is to identify those customer that will not pay their bill (debt), and limit their ability (by suspension and / or disconnection) to incur additional debt that will also remain unpaid, minimising the level of incurred bad debt.

Improved debt recovery - Billers can test the efficiency of their current recovery approaches (risk profiles) against alternatives. e.g. What is the collection improvement if a reminder letter is sent one day earlier? Can the wording of the collection letter be adjusted to improve the end result? A|B and A|B|A testing can be performed to improve each collection approach / timeline (risk profile) independently.

Whilst it is difficult and time consuming to assess the reaction of an individual customer to different collection approaches, by applying the collection process across a large number of customers statistically significant judgments can be made. Once an improved collection approach has been found it can become the incumbent model against which new alternatives are tested.

Bonus: Reduced collection costs - Early, high-cost collection activities such as outbound calls to the customer may result in improved collection results, but the collection costs will be high. By adjusting the collection activities and their timing by risk profile, the operational costs associated with achieving paid debt can be minimised. The balancing of collection results versus collection costs means that any A|B testing performed to improve the collection process must consider more than one measure of success.

For example: What is the collection impact if all low risk customers' reminder letters are delayed by two days versus the total reduced printing / mailing costs? For a medium risk customer does an outbound call (high cost) produce a better outcome than a reminder letter (lower cost), or an email (lowest cost) where a customer's email address is available?

Revenue Assurance

Revenue assurance validates a biller's systems to ensure that all charges that should be billed are, those that should not are not, and that the prices calculated are accurate. The scope of revenue assurance can extend to the settlements for interconnect and content, and validate that all network events make it to the billing systems.

Revenue assurance is concerned more with what the 'outcome' of a billing process should be rather than the method (process) by which it is derived. System discrepancies are found by comparing the results calculated by revenue assurance (based on documented business rules) with the actual results of operational billing. On investigation, the discrepancies can indicate errors in the billing systems, undocumented business rules or errors in the revenue assurance implementation (!).

By focusing on outcome, the assurance process is vendor neutral and able to detect errors of whatever source. When investigating discrepancies, the source of any error is unknown, and may be a symptom of inaccurate processing occurring upstream, one or two steps removed from where the discrepancy is detected.

Telecom Revenue Assurance

"The Telco Revenue Assurance Handbook" - This book introduces the basic concepts of revenue assurance and how it can be performed in a telecom environment. This book has a companion website at telco-revenue-assurance.com maintained by the author Rob Mattison. [ISBN: 1-41162-801-2 / Lulu Press / Rob Mattison / 2005]