There’s a dramatic shift taking place in the utilities market: a renewed focus on the environmental impacts of the industry and refurbishing an aging power grid. The pressing national and global challenges of the energy industry are increasingly prevalent in the media and in a variety of ways. How can we reduce our carbon emissions? What are our alternative energy options? How will we pay for renewable energy? What power plants need to be refurbished? How can we build new carbon-free power plants? How can we provide energy efficiency services to our customers? All of these questions and more are on the minds of utility companies everywhere with most remaining largely unanswered thus far.

A venture into addressing such questions underscores a company’s environmental responsibility to the public. Likewise, building new carbon-free plants or refurbishing old ones, demonstrates a company’s responsiveness to an environmental need – a need the public demands. While the consuming public calls for corporate and environmental responsibility, this same group of stakeholders is enduring the mortgage meltdown as well as a widening financial crunch.

During a time when companies are focused on environmental improvements, it’s now important to focus on steady revenue streams from customers to ensure that those goals can be met from a financial perspective.

Best-in-class utility companies recognize and value the importance of balancing industry and customer needs as much as they do business strategies and market trends. As economic challenges continue to pervade, the utility industry will increasingly see effects from late and uncollectable payments. Indeed, if customers stop paying their bills on a timely basis, utilities will experience the economic stress being felt by their ratepayers very quickly and directly.

The State of the Economy and Its Affect on Your Business
At a time when costs are soaring and foreclosures dominate headlines, Americans feel stuck. The uptick in consumer prices is taking a larger bite out of family budgets, resulting in a significant rise in delinquent payments and utility shut-offs. An April 2008 PEW Research report indicates that slightly more than half of middle class respondents say they expect to make more cutbacks in the year ahead while one quarter say they expect to have trouble paying their bills. In the past, customers who were struggling often took out an extra line of credit or home equity loan to meet their financial obligations, including bill payments. But based on the poor condition of today’s housing market, this option is becoming harder to access and is forcing people to look for other ways to cover everyday expenses.

On June 16, 2008, USA Today reported that utilities across the country are raising power prices –some by as much as 29 percent – mostly to pay for soaring fuel costs and new plant construction. In addition, the Consumer Federation of America reports that utility bills are up nearly 30 percent from just five years ago – the sharpest jump since the 1973 energy crisis.
Given these strained financial circumstances, utility customers are managing their budgets more closely than ever and prioritizing their expenses and bills accordingly.

Nationwide, an estimated 15.6 million households owed almost $5 billion in utilities payments in March, according to the National Energy Assistance Directors’ Association 2008 energy survey. That is an increase of almost $640 million – or 9.5 percent – over 2007. Of the households that owe, about 14.8 percent – up from 13.5 percent last year – are at least 30 days behind in their utility bill payments.

In these difficult times when many customers are facing steadily increasing costs and ever-greater financial challenges, customers will select and prioritize when and how to pay their bills, directly subjecting billers to the financial status of the customer. Moreover, customers prioritize paying their bills based on urgency. Besides the strain of living paycheck to paycheck, many customers are further stressed over the bill payment process itself.

The result: studies suggest that utility bills are among the last to be prioritized and paid when crunch time hits. The solution: understand your customers and the challenges they face paying bills. The opportunity: implement customer-care solutions that empower customers to accelerate their payment through any channel they trust. It’s about speed, convenience and reliability.

Best-in-Class in a Down Economy
According to Moody’s index, “The apparent dichotomy between the trends in early- and late-stage delinquencies may be indicative of an ever more challenging collection environment. That is, once cardholders fall behind in their credit card payments, it is increasingly difficult for them to become current on their payments again.”

As customers struggle to make ends meet and get payments in on time, one way that utilities can help reduce some of the stress customers feel is offering a variety of payment options. When customers look for payment solutions, you don’t want to be skipped over because you don’t offer the option that best fits their needs and lifestyles. For instance, if a consumer’s only option is to pay bills via debit card, and you don’t offer that choice, they will most likely decide to pay other bills that accept debit and hope to make up missed utility payments in the future. When that happens, you lose a customer’s payment, and they fall even further behind.

Eighty-four percent of businesses expect to be paying more for collection efforts in 2008. Only eight percent of these companies have Web-based collection support, although a majority of people prefer to pay late bills on the Web. Therefore, it’s more important than ever to provide these customers with fast, safe and convenient ways to make their payments while keeping them out of further debt. Service, trust, reliability and ease will be the deciding factors in how these customers choose to pay and which bills they put at the top of their list to keep current. Offering multiple payment options can that build customer relationships while saving you money is a win-win situation.

Delivering Flexibility & Convenience to Your Customers
According to a proprietary study conducted by Forrester Research and Western Union Payment Services in 2007, 56 percent of responding households mail a check to pay their bills, reducing consumer control and precision regarding when their payment is actually received and processed. Clearly, there is – and will probably continue to be for some time – a high percentage of customers that utilize traditional bill paying methods and mailing checks. However, the findings show that there is an opportunity for utilities to provide additional bill payment options to their customers, and in turn, increase customer loyalty and engagement while also saving money.

Utilities also have the opportunity to integrate consumer bill payments into the customer care program. Doing so helps to give customers a sense of ownership by paying their bill during a time when so many other things are spiraling out of their control.

Moreover, multiple payment options create stronger and more profitable customer relationships by improving the customer experience across all channels and streamlining functionality to make it easier to process payments. Following are some specific payment categories that can be implemented to build trusting relationships with your customers.

Electronic Bill Payment
By the year 2011, over 59 million households are expected to pay bills online, which is a 63 percent increase from 2007, according to a recent Forrester Research study on customer technology adoption. Electronic bill payment is often the preferred choice of customers for paying monthly bills of varying amounts. Providing an electronic payment option will allow your customers to set up a recurring payment schedule that will also help ensure receipt of a timely payment every month. The various electronic payment platforms help to personalize each consumer’s payment method, while the simplicity of the service provides convenience.

Implementing electronic bill payment options provides various benefits to the utility as well. First, it is a cost efficient method for collecting payments. Second, payments can be received instantly instead of waiting for the check to be mailed and then processed by one or more banks in the payment path. Third, there is a quicker response rate as an increasing number of customers are likely to pay their bill immediately when using an electronic payment option. Fourth, an electronic payment option will improve your customer relationships via increased customer access and engagement opportunities.

And lastly, by providing electronic bill payment options to your customers you are affording them the opportunity to achieve paperless billing and also doing your part to be environmentally responsible. According to a new study commissioned by the PayItGreen Alliance, if one in five households switched to electronic bills, statements and payments, the collective impact would save 151 million pounds of paper, avoid filling 8.6 million household garbage bags with waste and avoid producing two million tons of greenhouse gas emissions.

Walk-In Payments
Walk-in payments are convenient for those customers who prefer to make payments by cash, including the 50 million Americans who don’t own credit cards. This payment option allows customers to pay their bills in convenient locations where they are conducting their everyday errands, such as trips to supermarkets and malls. Customers who choose to pay bills using the walk-in payment method are looking for convenience, speed and reliability – primarily within their own neighborhoods.

For billers, there’s the option of maintaining your own walk-in bill payment facilities (i.e., on-premise) or outsourcing the walk-in bill payment option by using third-party off-premise processors. This option accelerates payments to the utility provider while helping to improve cash-flow and significantly reducing past due accounts.

Credit Card Payments
Credit card acceptance is nothing new to the utility industry. Customers can pay their energy bills with a credit or debit card at about 80 percent of all utility companies. But most large utilities have not traditionally offered recurring payment programs. Instead, they usually outsource one-time credit card payments by phone to third parties that charge customers a fee to cover the cost of the call as well as the applicable credit card fees. The average of these fees is more than $4 per transaction. As a result, several large electric and gas utilities are leading the charge to reduce payment processing costs by offering recurring card payments via the Web.

Online Banking
Online banking is the payment method of the future, but it is already well under way. By 2010, it is estimated that 46 percent of online bill payments will be made through “consolidator” Web sites. Also, it is estimated that the number of customers paying via “consolidated” online banking will increase by as much as 59 percent by 2010.

The world of online banking is changing the way people pay bills. Customers are able to schedule payments that will post the same day and take advantage of real-time customer validation, which significantly reduces the number of misapplied payments. This option substantially improves the overall customer experience. Moreover, the biller pays no fees to utilize the online banking option, and billers will receive guaranteed funds in 1-2 days.

Overall, online banking is arguably the most convenient and flexible payment option for the customers as it helps them manage their money more effectively by scheduling transactions in advance and controlling when the payments are actually made with a high degree of precision and certainty.

Embracing Change
As utilities continue to cope with an uncertain economy and the impact it is having on their customers, understanding and delivering useful tools that promote the financial well being of customers will guarantee lasting relationships. By providing your customers with multiple payment options you will create stronger and more sustainable customers relationships and a vastly improved customer experience that pays dividends to utilities and customers alike.

About the Author
Randy Vyskocil has been in the information technology and payments business for more than 12 years. He is responsible for all business development for Western Union Payment Services’ Utility Vertical Market focused on providing biller direct and online banking, billing and payment solutions to utility providers.