Improve Collections with A Walk-in Payment Solution

It is an unfortunate situation that is becoming all too familiar among utility companies – rising delinquency rates. With an overall sluggish economy, not to mention rising electric and natural gas bills, a growing number of consumers simply can’t keep up and are failing to pay their bills. This is presenting utility companies with a difficult dilemma, to determine the most efficient way to collect on these late payments or take the drastic measure to shut off service.

As reported in the Denver Post in July, Xcel Energy estimates it will shut off 47,000 Colorado customers for delinquent bills during the second and third quarters of this year. According to regulatory filings, this represents a staggering 140 percent increase over the same period in 2005, revealing the dire situation that Xcel Energy and other utilities nationwide are facing today.

Since there is no immediate fix for the lagging economy and the potential consequences, it is clear that utility companies need to rethink their suite of payment options to ensure they are equipped to provide consumers with fast and flexible options for emergency bill payment.

Not Necessarily Better Late Than Never

Late payments and the myriad of problems they cause are not new, however, it is the rapid and ongoing rise in delinquent payments that is cause for concern. As the volume of payments in late status escalates, so does the arduous process of collecting on these payments or threatening to cease service — a situation that both consumers and utilities desperately want to avoid. Often it is a process that is quickly reversed, posing significant cost implications and unnecessary hassle to the utility company.

Consider the customer who makes a last-minute, emergency payment to avoid service disruption. Perhaps they simply dropped their check in the mail. In the meantime, the utility company may have dispatched a truck to turn off service even though the customer made the payment. A few days later when the payment has posted, the company has to dispatch another truck to the customer location to restart service. It is a time intensive and costly cycle that is only expected to get worse with a growing number of consumers delaying payment of their bills or trying to find loopholes in the system.

For utilities located in states with shut-off restrictions, the situation is even more complex. As unpaid bills continue to accrue, utilities are often forced to pass along the write-offs to the rest of its paying customers in the form of increased rates which further contributes to the overall problem of skyrocketing prices.

One of the best ways for utilities to combat late payments is to offer customers a variety of convenient options to pay bills easily and quickly.

In the Age of Electronic Payments, Why Walk-in?

As the number of consumers living to paycheck to paycheck increases, so does their dependence on expedited or “same-day” payment services. While many billers can process expedited payments in the form of Web, interactive voice response (IVR) or phone payments, they are less well-equipped to accept cash or “in-person” payments — one of the fastest growing payment channels today.

According to a report from Aite Group*, an estimated 1.2 billion walk-in payments were performed in 2007, and this figure is expected to grow at a compounded annual growth rate of 5 percent. The growth is due, in large part, to consumers’ need to make emergency payments to avoid significant late penalties or disruption of service. These expedited and most often cash payments are being made by banked consumers of various income brackets, not just the unbanked population.

In 2006, MoneyGram International conducted a survey** among users of its MoneyGram ExpressPayment ® Service, which enables consumers to make same-day, cash payments at any of MoneyGram’s 33,000 retail agent locations such as Wal-Mart, Advance America and Albertsons stores nationwide as well as leading financial institutions, including all U.S. Bank and National City branch locations. Interestingly, MoneyGram found that:

69 percent of its walk-in users did indeed have a bank account 95 percent of users were likely to reuse the service Average purchase frequency was 14 times per year   Consumers opt to pay in cash for a variety of reasons. Some desire a proof of payment and take comfort in holding a tangible receipt. With a cash payment, there is no risk of nonsufficient funds (NSF), and the consumer is able to mitigate the consequences of a late payment. Finally, for the underbanked or consumers with cash flow issues, paying in cash is the most convenient payment method.  

The Missing Link in Your Collections Portfolio?

Beyond providing a valuable service for customers, walk-in payment services help to aid the collections process and increase utilities’ likelihood of getting paid. These expedited payments are primarily collected in cash, and therefore are guaranteed funds. In addition, new payment tracking technology enables collectors to track these cash payments online and in real time. This is an important advantage to utilities as it gives them the benefit of seeing that a good funds payment has been accepted on their behalf, nearly simultaneously to when the payment is accepted at the retail location. It is a process that can ultimately save utilities the considerable expense and aggravation of having to turn off and subsequently restart service.

While many utilities do allow in-person payments at central or branch offices, they are increasingly looking to outsource this function as they evaluate the cost and management of these branches, not to mention the risks and rules associated with handling cash payments. Outsourcing may be an attractive option to continue offering a walk-in payment solution, expand the network where customers can make payments and ultimately save money.

Aite Group* reports that utilities will continue to outsource walk-in payment centers over the coming years with an estimated increase from 187 million off-premise transactions in 2004 to 326 million transactions in 2010.

“More than 70 percent of our payments are made via the walk-in channel,” said Nelson Davis, a call center manager with Freedom Power and PhoneCo in Texas. “Our customers tell us they prefer walk-in payments because they don’t have to worry about their check or money order being lost in the mail.”

By outsourcing walk-in payment centers, utility companies are able to provide their customers with the added convenience and flexibility to use walk-in services throughout their payment partners’ large network of retail locations. Often these networks include well known financial institutions and popular retail establishments, such as Wal-Mart or other national drug stores and grocery store chains, that customers already frequent on a regular basis.

How A Walk-In Payment Works:

• The utility directs its customer to one of several convenient retail locations within its network.
• The customer visits the location, provides identification information, a biller code and the cash payment to the retail agent.
• The utility company receives a real-time payment notification as the funds are simultaneously deposited into its account while the customer receives a printed receipt that their payment has been accepted.

Tips for Implementation

Once utility companies determine that walk-in services will bring value to their organization, there are a few considerations to keep in mind before embarking on the implementation phase. Following is a list of “Questions To Ask.”

• How much will customers be charged per bill payment?
• What type of reporting will be provided? Batch, multi-batch, or real-time?
• How convenient are the payment locations? Consider the service area to determine if national coverage is needed. For example, for a transient customer base, it may make sense to partner with a third-party payments processor who can provide additional walk-in locations nationwide—locations that customers may already frequent such as popular grocery stores or retail chains and locations that remain open to serve customers during hours when financial institutions are typically closed.
• What software or IT requirements will be necessary?
• Are the services regulatory compliant?
• How will the new services be marketed to customers?

Implementing a walk-in payment solution enables utilities to save valuable time and money, ease operations and aid collections. Equally important, adding this convenient payment alternative enables utilities to better serve their customer base by providing a fast and easy way to pay their bills that will be appreciated during these poor economic times and beyond.

*Aite Group, Walk-in Bill Payments: The Prepaid Storm, 2006

**Based on 2006 MoneyGram survey of 700 MoneyGram ExpressPayment ® users