Credit & Collections

May 13-16, 2014

Nashville, TN

2014 Customer Service BenchmarkingData Review Conference

Agenda

◼ Guidelines Review

◼ Key Measures and Financials

◼ Anomalies, Issues, Outliers and Corrections

◼ Next Steps

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Customer Service Benchmark Study Organization

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CS Support and CS IT, TrainingCS Support and CS IT, Training

Customer Contact• Contact Center• Local Office• Self Service• Contractors• Credit Inbound calls

Customer Contact• Contact Center• Local Office• Self Service• Contractors• Credit Inbound calls

Back Office•Billing•Billing Field Policies•Payment Processing

Back Office•Billing•Billing Field Policies•Payment Processing

Field Service• Change of Account• Billing Field Orders

(meter investigations)

• Credit Field Orders• Order Management

Field Service• Change of Account• Billing Field Orders

(meter investigations)

• Credit Field Orders• Order Management

Meter Reading• Manual• Mobile AMR• Fixed Network AMI

Meter Reading• Manual• Mobile AMR• Fixed Network AMI

Revenue Management• Credit Office and

Outbound calls• Credit Field and Inbound

Contact Policies• Revenue Protection:

Office and Field

Revenue Management• Credit Office and

Outbound calls• Credit Field and Inbound

Contact Policies• Revenue Protection:

Office and Field

Customer Life-cycle: Meter Set to Cash Measures, Policies & ProcessesCustomer Life-cycle: Meter Set to Cash Measures, Policies & Processes

Employees: Safety, StaffingEmployees: Safety, Staffing

Customer: Customer Satisfaction, First Contact Resolution, Customer ExperienceCustomer: Customer Satisfaction, First Contact Resolution, Customer Experience

Areas excluded:◼ Energy Audit/Energy

Efficiency Group◼ Meter Change-out◼ Account Executives

Guidelines Review

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Functional Cost Model

Our approach to collecting cost, performance and staffing information follows customer transactions through each functional area.

For Credit, the costs (and activities) are drawn from several parts of the cost model, and several parts of the questionnaire.

Cost Definitions: Functional

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Vehicle Costs Costs associated with the operations & maintenance of vehicles for use solely by Customer service; usually charged out on a per mile or some other basis. Any payments for use of personal vehicles should also be included.

Write-offs Costs; Uncollectible expense.

Write-offs are defined as the net percent of total revenue written off (e.g. less any recoveries). Goal is the actual dollar amount written off during the year. This is not necessarily the same as “uncollectibles”, which is in the FERC 904 account for the year, since that can be affected by changes in the provision for bad debt during the year (FERC 144 account). Write-offs are the annual “net” cost of bad debt. In other words any recoveries (less fees) should be subtracted from gross write-offs.

Other Costs Other miscellaneous costs not specifically broken out such as employee travel expenses; training; office supplies and any of the categories that are grayed out such as vehicles in the call center or postage in field service.

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Write-offs

This question captures Revenue and Write-off information. Note the most important fields are highlighted in green. If you do not answer these, you will not appear on the Write-offs per Revenue graph.

A Couple of Key Credit Definitions

Performance Measure

◼ Write-offs Percent = Net percent of total revenue written off (e.g. less any recoveries). Goal is the actual dollar amount written off during the year. This is not necessarily the same as “uncollectibles”, which is in the FERC 904 account for the year, since that can be affected by changes in the provision for bad debt during the year (FERC 144 account). Write-offs are the annual “net” cost of bad debt. In other words any recoveries (less fees) should be subtracted from gross write-offs.

◼ Percent Past Due 60 Days = Percent of bills unpaid at 60 days. Note for most utilities this is balance due at second bill.

◼ 1QC will perform some data validation checks to verify that the uncollectibles is determined correctly. In particular, the 904 value should = Write-offs – (change in 144). An example can help:

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Example Data Validation – Write-offs and uncollectibles

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Example calculation for uncollectibles (FERC Account 904):

Essentially, the uncollectibles value varies in the opposite direction of the change in the allowance for bad debt (acct 144)◼ In Example 1, the allowance isn’t changed from last year to this year, so

write-offs and uncollectibles are the same.◼ In Example 2, the allowance is increased from last year to this one, which

has the effect of reducing the uncollectibles value for the year.

Example 1 Example 2

144 Account (Last year) $100 $100

144 Account (Current year) $100 $120

Write-offs $115 $115

Uncolllectibles (Acct 904) $115 $95

Cost Model – Source of Credit Data

Note that the costs in the follow-up questions for the main cost matrix provide some of the key data for the credit costs

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Technology – Credit

NOTE: CIS is a separate category

Technology Any technology specifically used for a function such as meter reading devices, mobile data technology, telephone switch or call routing software, call monitoring software etc.

Contact Center:◼ IVR◼ ACD◼ Scheduling Software◼ Workforce Management (WFM)◼ Multi-channel processing◼ Web, Social Media technology costs◼ VOIP◼ Web/email routers◼ Virtual hold technology costs◼ 3rd party applications (OMS interface etc.)

Field:◼ Mobile data◼ Scheduling◼ GPS◼ Telecommunications◼ Routing software◼ Dispatching software

Revenue Protection◼ Tamper plug◼ Data mining software

Meter:◼ Handhelds◼ Routing software◼ Telecommunications◼ Remote disconnect◼ MV 90◼ GPS

Bills:◼ Inserters◼ Web/email, bill presentment◼ C/I billing software (MV 90)

Payment:◼ Image processer◼ Slitter/sorter◼ Interface w/kiosks◼ Routing software for off-site payments◼ Payment Kiosks

Credit:◼ Behavioral scoring◼ Predictive dialer◼ Credit optimization software

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Sections in the Credit questionnaire

Overall Results – Delinquencies

Transaction Volumes

Process Management

Regulatory Environment

Process Steps◼ Account Initiation◼ Active Account Management◼ Collection Actions◼ Final Account Management

Customer Assistance

Supplier Credit

Technology

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Process Model -- Key Areas of Credit & Collections

Note: Process includes Residential and C&I segments

Account Initiation

Active Account Management

Collection Actions

Final Account Management

Customer Assistance Programs

• Credit Scoring• Deposit

Requirements• Positive ID • Customer

Information Collection

• Fraud Prevention• Past due Amounts• Service Denial• C/I initiation

• Deposit Review• Behavioral Scoring• Contact Center

Policies• Customer

Segmentation• C/I Analysis• Late payment fees • Landlord

Agreements• Special Accounts• Record maintenance• Final Bills• Vacant Properties

• Notices• Payment

Arrangements• Outbound calling• Field collections• Field termination

(cut-out)• Restoration of

service (cut-in)• Sheriffs

Warrants/Legal• Bankruptcy/

Judgments• C/I Collections• Supplier Collections

• Final Billing• Write-off• Skip-Tracing• Collection Agency

Operations• Reporting to Credit

Bureaus/ National Information Exchanges

• Low Income Assistance Programs

• Li-HEAP Programs• DSS/ State• Other Grants• Notification to DSS

of Pending Termination

• $ Minimums• Community

Outreach

Involved/Affected Organizations – Credit, Call Center, Accounts Processing, Field/Meter Services

Process Management – Performance measurement & reporting, organization structure, staffing & resources, effectiveness measurement of individual actions, write-off forecasting, optimization modeling

Regulatory Environment – RULES

Credit & Collections Distribution Through cS

For analysis, we'll put the credit process cost back together from 3 different sources – Credit, Field Service, and Contact Center

We have three primary sources for volumes:◼ Contact Center

New account setup calls Number of inbound credit calls

◼ Field Service Number of field credit orders worked

◼ Credit Office Number of outbound credit calls Past-due accounts Accounts written off

We expect to continue to ask these questions in multiple places in the questionnaire, to better fit with the organization structure and channels for executing the work

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Guidelines - Credit Office Activity

◼ Notices issued, determination of disconnections and reconnections, payment arrangements when handled in the credit area (separate from contact center), outbound calls, policy development and execution

◼ Include any collection agency or skip trace costs in contracted services

◼ Only include credit postage if a separate credit mailing, otherwise put in billing.

◼ Include outbound credit calls, which are calls made by the company (or contractors) to remind customers to pay their overdue bills, make payment arrangements, etc.

◼ Include credit scoring transaction fees

◼ Bankruptcy

◼ Customer Assistance

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What's included:

Guidelines - Credit Office Activity

What's excluded:

◼ Field activities (connect/disconnect for non-pay, notices, collections) should be included in Field Service

◼ Inbound credit calls belong in contact center

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A Couple of Key Credit Definitions

Performance Measure

◼ Write-offs Percent = Net percent of total revenue written off (e.g. less any recoveries). Goal is the actual dollar amount written off during the year. This is not necessarily the same as “uncollectibles”, which is in the FERC 904 account for the year, since that can be affected by changes in the provision for bad debt during the year (FERC 144 account). Write-offs are the annual “net” cost of bad debt. In other words any recoveries (less fees) should be subtracted from gross write-offs.

◼ Percent Past Due 60 Days = Percent of bills unpaid at 60 days. Note for most utilities this is balance due at second bill.

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Note: we had an error in the original questionnaire, with a misleading “guidance” statement:

Volumes – Deposits Collected

One area of interest is the number of deposits collected as a ratio to new applications . . .

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New Customer Applications

Qualify for deposit requirement

Actually bill the deposit

Deposits collected

Customer Assistance scope

Added last year as part of the core questionnaire, we have included:

◼ Customers eligible (%) for assistance programs (CR355)

◼ Customers receiving (%) assistance (CR360)

◼ Costs to the utility ($ contributions, labor, waivers of charges) (CR370)

◼ Practices and processes, approaches, policies, promotion of programs

(CR385-CR410)

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Moratoriums and Disconnections

We received an inquiry about question CR302:

The question reads: “What percent of delinquent customers that SHOULD be disconnected are disconnected?"  

The point of the question is to understand, for those customers who are eligible for disconnect within all your regulations, rules, and policies, what % of those customers are actually disconnected.

For example, if you have a moratorium in place that prevents disconnection, the customers wouldn’t be eligible for disconnect. However, if the weather warms up and the rules change, then they would be eligible for disconnect.

In the end, we want to know how many could you disconnect vs how many did you actually disconnect.  

Follow-up questions might be: Do you know why?  How do you select those that aren’t disconnected? and so on. We haven’t asked the follow-up questions.

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Key measures & Financial

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Credit & Collections Profiles

    Mean Q1 Q2 Q3 Bars Mean Q1 Q2 Q3 Bars

Cost                    

Total Credit & Collections Office Cost (Excluding Write-Offs) Per Account * Commodity

$2.28 $1.43 $2.48 $3.05 11 $2.48 $1.49 $2.55 $3.22 13

Total Credit & Collections Office Cost (Including Write-Offs) Per Account * Commodity

$13.81 $4.00 $16.67 $19.60 12 $18.15 $14.59 $18.62 $24.84 14

Total Credit & Collections Cost (Office, Field, Outbound Calls, Ex Write-Offs) Per Account * Commodity

$3.77 $2.24 $3.88 $4.80 12 $4.64 $2.95 $5.27 $6.01 13

Total Credit & Collections Cost (Office, Field, Outbound Calls, Inc Write-Offs) Per Account * Commodity

$14.30 $3.05 $18.99 $20.47 13 $20.15 $16.67 $20.47 $27.11 14

Write-offs                    Write-Offs Per Account * Commodity $17.59 $15.64 $17.74 $19.74 8 $15.85 $11.90 $17.68 $21.90 14 Write-Offs As A Percent Of Revenue 1.106% 0.987% 1.156% 1.351% 7 1.060% 0.832% 1.153% 1.352% 13

Internal Measures                    Average days sales outstanding 35 31 35 41 10 34 31 35 39 11 During an Average Month, Percent of Customers >30 days: Combined Total

12.98% 6.91% 13.15% 18.25% 8 0.3% 0.2% 0.2% 0.3% 10

Percent of customers greater than 60 days past due: Total

17.1% 11.4% 17.7% 23.5% 8 13.9% 4.3% 6.5% 17.0% 5

Percent Of Receivables Greater Than 60 Days - Residential

30.4% 24.4% 30.7% 34.0% 9 21.6% 12.1% 24.3% 32.0% 9

Disconnects per Account * Commodity 4.7% 2.5% 4.2% 5.1% 9 0.1% 0.0% 0.0% 0.1% 12

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2013YE 2012YE

Items circled in red were changed in terms of orders of magnitude for this year – will be corrected before Insights conference

The blue circle indicates an anomaly – the first 4 companies didn’t include their write-off figures

Total credit costs, Excluding Write-Offs

23Page: 9 Questions: FL5, ST5, FL25

Some companies are unable to provide field credit costs, while others are unable to provide outbound calling costs. One company with no office cost and one with negative office cost

Some companies are unable to provide field credit costs, while others are unable to provide outbound calling costs. One company with no office cost and one with negative office cost

The negative value for Co # 25 is caused by having a larger value for outbound calling (FL25) than for all of Credit Office (FL5).

Total Credit Costs

As in all years, write-offs is by far the largest part of the credit cost totals. The lack of ability to identify field credit costs for some companies makes the comparisons less valid.

Page: 11, Questions: ST5, FL25, FL5, FL35

Missing write-offs

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Deposit Policy and Execution

The number of companies able to answer most of question CR180 on Deposits is very low.

Page: 76, Question CR180

For those able to answer the question, is there a particular system used to track the data?

For those unable to answer the question, are there particular components that make it impossible?

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Anomalies, issues, outliers and Corrections

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Issues found: Credit & Collections

Page # Q # Primary Issue Who

5,6 FL5 Negative value for “other” 36

7,8, 11 FL15 4 companies missing write-off costs 20, 21, 23, 27

8 FL5, FL15

Only cost shown is write-offs 34

9, 10 FL5, FL25, FL35

Most companies missing outbound calling costs. 4 companies missing Credit Field, 1 company with negative value for Credit Office

20, 21, 23, 36, 25

19 CR5 Missing 30/60/90 days arrears 21

22, 23, 26, 32, 35

CR5, CR10

No receivables or customers over 90 days in arrears?

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41 CR25 Outlier – order of magnitude 29, 32

43-45 CR30 Only one or two companies provided responses. If no further data, delete charts

1QC

49 CR42, CR40

Typo in title – “Arrangmenet” 1QC

51 CR45 Answers truncated in table 1QC

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Issues found: Credit & Collections (Continued)

Page # Q # Primary Issue Who

52 CR45 No answers - delete page if no answers received 1QC

73 CR140 No answers for “other”. If none provided, then delete page

1QC

79 CR176 No graph – investigate 1QC

112 CR371 Don’t put name of home state in your answers 25

114 CR375 No answers for “other”. If none provided, then delete page

1QC

118 CR390 Don’t put company name in the answer 32

121 CR405 Don’t put company name in the answer 25

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Credit and Collections

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This is key functional data that is needed to understand impact across the entire “Customer Service” process.

Question # Question Functional Process Impact

CR5 Past-due ReceivablesDuring an average month, what percent of your receivables are …

Contact Center Field ServiceCredit Collections

CR10 Past-due CustomersDuring an average month, what percent of your customers are …

Contact Center, Field ServiceCredit Collections

CR40 Please provide the volume of transactions of each type that occurred during the past year.

Contact Center, Field ServiceCredit Collections

CR70 through CR96

Regulatory..example (CR70) What are the key regulatory rules in your service territory that govern collection activity? Please note any differences among your service territories.

Field Service, Contact CenterMeter ReadingCredit Collections

CR100 Account Initiation…What are the key steps you take to ensure credit-worthiness of customers different from the above description?

Contact CenterCredit Collections

CR285 What practices are in place to align your collections activities with the resource capacity of your field forces? (discuss selection of accounts for action and alignment of management goals)

Contact CenterField ServiceCredit Collections

CR240 What is the minimum number of days after bill delivery before your policies call for the following credit-related actions to be implemented for a high-risk customer? (process/policy)

Contact CenterField ServiceCredit Collections

Status

30Based upon “completion reports” run on May 9.

• Minutes from this meeting will be available by May 23.• Next Deadline is June 2. This draft will be your last chance to see how your

data compares before the final report, so you need to have all of your data input and correct at this time. The final deadline is for ensuring all of your data is correct.

• Your data coach will help you finalize your data.

Thank you for your Input and Participation!

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Ken Buckstaff Ken.Buckstaff@1QConsulting.com310-922-0783

Gene DimitrovGene.Dimitrov@1QConsulting.com301-535-0590

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Rob EarleRob.Earle@1QConsulting.com315-944-7610

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First Quartile Consulting is a utility-focused consultancy providing a full range of consulting services including continuous process improvement, change management, benchmarking and more. You can count on a proven process that assesses and optimizes your resources, processes, leadership management and technology to align your business needs with your customer’s needs.

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