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‘Historic shock’ to customer incomes - how can collections teams respond? 30 MARCH 2022

‘Historic shock’ to customer incomes - how can collections teams respond?
5 minute read

"This really is an historic shock to real incomes. The shock from energy prices this year will be larger than every single year in the 1970s."
Bank of England governor, Andrew Bailey[i]

This statement from earlier in the week brings into focus the spectre of a cost-of-living crisis that we’re likely to face in the UK. Caused by soaring inflation, forecasters are now predicting the worst deterioration in standard of living since the 1950s.

The collections industry is likely to be on the frontline of the crisis, dealing with increasing numbers of people struggling with problem debt. In this blog, we look at the causes behind the crisis, and how we can respond to help those most in need.

What’s driving this crisis?

After a long, stable period, inflation is rampant again, with three main macro-economic drivers:

1. Post-COVID supply chain compression – the global trading mechanisms that allow “just in time” logistics have stretched during global restart

2. Brexit – there has been some trading friction during the adjustment period, as trading counterparties adjust to new ways of doing business[ii]

3. Conflict in Ukraine – this humanitarian catastrophe has also added to uncertainty and restriction of supply of oil, gas, wheat, fertilizer and metal[iii]

What impacts are consumers seeing?

Whatever the macro-economic drivers, the rise in inflation has reduced available disposable income per person to the worst levels since 1956 to minus 2.2%, with 2022 being only one of nine since then that’s seen a negative change.

Prices are rising for consumers in fundamental areas:

1. Energy

The price cap has risen by £693 to £1,971 this week and is expected to increase again on the next assessment to £3,000-3,500. Those in the bottom decile of earnings are being impacted the most given that 7.1% of their budget is spent on electricity and gas (compared to just 2.5% by the top decile group).

Previously, customers were able to optimise their energy spend by switching to new entrant suppliers. However, in the past few months, the number of suppliers has dramatically decreased, with the remining suppliers reluctant to take-on new customers and pricing amongst suppliers is now tightly clustered.

2. Fuel

The recent but temporary 5p reduction in fuel duty should reduce prices at the pump, but we may not notice. The fuel duty support goes direct to the retailers and, in some cases, has not been fully passed on to consumers. However the picture is clouded as prices were rising as the measure was introduced and retailers have purchased stock at high prices.  

3. Food

Food price inflation[iv] is being driven directly by the same instabilities, with significant wheat price increases and availability of fertiliser being direct impacts. The cost of energy in production and retail is being sighted as a driver of food inflation and is so expected to continue.

What does this mean?

Cost increases are in necessities, not luxuries, and the challenges people are facing today are unlike those we have seen in a generation. We’re also seeing new types of customers entering arrears for the first time as they struggle to keep up payments for these essential costs.

This also means more people are facing debt-related mental health issues, and debt charities are struggling to support them. Citizens Advice Bureau has reported that support required has surpassed the levels of the peak of the COVID lockdowns and Martin Lewis of Money Saving Expert has asked for government to step in, stating “we are at the end of what can be done with money management and budgeting – intervention is required.”[v]

How has government responded?

The policy adjustments in the spring statement will provide some support to consumers, but perhaps not on the scale that will prevent more people being trapped in a ‘heat or eat’ dilemma:

  • The National Insurance threshold will increase from £9,800 to £12,500, which will take some of the lowest paid out of any tax bracket
  • An additional £500m (bringing the total to £1bn) has been given to local authorities to help vulnerable households with rising living costs
  • VAT has been removed from energy efficiency measures such as solar panels and insulation, however this will only assist those who have the funds to make use of this incentive

What can collections teams do to help?

The last two years have already led to increased regulatory requirements and driven a period of significant transformation for collections (for example, Breathing Space,  OFGEM’s Ability to Pay principles have all been introduced or formalized, and the FCA’s Customer Duty will be introduced in July).

But what else can your teams do to help achieve fair outcomes for your customers?

1. Align policies, procedures, and processes to ensure good customer outcomes are embedded operationally, including clear rules and guidance around forbearance and payment arrangements

2. Review risk models and include scenario outputs which will feed into demand and operational capacity planning, cashflow forecasts and provisioning impacts

3. Close resource gaps to ensure you have the right number of staff, with the right skills, in your teams - collections recruitment is currently being impacted so standing up new teams may take longer

4. Increase self-service across various aspects of the collections journey (including forbearance, income and expenditure, and vulnerability assistance) to ease the burden on your teams and improve the customer experience

5. Utilise Robotic Process Automation for manual, repetitive, low skill tasks, to free up your teams’ time for higher value, customer-focused activities

6. Review outbound proactive activity such as proactive diallers, voice messaging, text messages and emails to ensure they’re working together in an omnichannel approach to drive better outcomes

7. Make use of industry-specific internal data such as spend profiling in banking, or smart meter data in utilities, to understand portfolio performance as well as drive proactive response strategies and risk profiles

8. Optimise treatment paths and implement more empathetic tone and timing, ensuring signposting to the range of specialist support organisations

It’s never been more important that we make sure people in debt have access to the support they need to drive fair outcomes for customers, whilst also making sure those who can pay do pay.

Arum are collections and revenue experts with over 23 years’ experience across 20 countries helping organisations to prevent and resolve problem debt. We’d be pleased to talk to you about any of your current challenge so feel free to get in touch.

Matt Washington
Senior Consultant






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