Credit Management and Customer Risk

The perceived risk (to the biller) of a customer (and their respective billing accounts) will change over their lifetime with the biller. The risk to the biller is that a customer will incur expenses (e.g. external payments the biller must make to others such as phone call settlements), or will delay payment of their bills requiring the biller to 'fund' the customer's debt, impacting both the biller's cashflow and increasing their business expenses (i.e. interest payments).

A new customer without any history with the biller will often be classified as being a higher (credit) risk to the biller because the biller cannot (yet) tell if, how and when the customer will pay their bills. A longer-term customer with a history of payments (in response to bills) can be judged on their actual history, and treated as higher or lower risk accordingly.

Credit Management Responses to Non-Payment

When a customer does not pay their bill by the due date, the biller may choose to remind them by making contact in one (or more) of the choices available:

• By Email: This requires that the biller has captured the customer's email address, and that the customer checks that email address in a timely manner.
• By SMS: A reminder via this approach is more likely to capture the customer's attention and may trigger an immediate response such as a call to a call centre (to provide payment via a credit card). The customer is likely to have provided their mobile / cell phone details as part of the biller's signup process, and the biller can intentionally capture this detail so that direct contact can be made with the customer.
• By Post: A paper reminder notice is sent to the customer's contact postal address. This is an expensive option since letter, envelope, printing and postal charges will be incurred to perform this action. For this reason, email and SMS are cheaper electronic, lower-cost communication channels than paper-based mail. Paper-based mail allows a formal communication to be performed, especially when the end goal is to disconnect the customer. These documents can have a range of severity from a gentle reminder through to a threat of imminent legal action.
• By Phone: A direct outbound call to the customer to remind them in person and try to elicit a 'promise to pay' their bill, either immediately over the phone, or via payments to a schedule (by a date, or part payments over time). This is also an expensive option based on the associated call centre costs (especially when compared to paper and electronic contact options).

Alternatively, if the customer has not paid their bill after being reminded, and the biller's specific network supports suspension, then the customer might be suspended (withdraw network access) to reinforce the importance of the customer paying their outstanding debt.

Adjusting Credit Management Actions

Billers can manage their costs and credit management effectiveness by adjusting the actions that are performed, and the timing of those actions. The effectiveness of the different credit management plans that are applied can be tested (e.g. using A/B testing) to find the most effective balance of response and cost.

There is also a need for any response to non-payment to be forgiving (not overact) when a customer's payment history has been otherwise positive, as customers will have an occasional payment go astray.

• When customers pay their bills on time (over an extended period), then the actions used by a biller to remind them of non-payment can be adjusted to occur at a slower rate, and using possibly cheaper communications channels (e.g. as validated by A/B testing).
• Customers who do not pay their bills on time can have their reminder notifications sent with shorter lead times, and with more severe warning messages (i.e. suspension, disconnection, legal recovery).
• If customers adjust their behaviour from not paying on time, to paying as and when requested, then reminder messages can be relaxed to a more liberal approach.

An alternate approach is to inform the customer (say via a letter) that they have been placed on a shorter, more critical credit management cycle due to their repeated failure to pay on-time. The message to the customer could indicate that (say) three on-time payment cycles will place them back on a regular credit management cycle.

The specifics of the credit management applied will be specific to the biller's industry (e.g. regulation), network type (e.g. suspension, disconnection) and their experience of the 'effectiveness' of different approaches.

First published by

- 08 February 2013

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» Note 73: Billing Services Segmentation: Logical Division of Network Service Details

» Note 72: Billing Services: Non-Network Service Details

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