A new report from technology-enabled data consultancy Sagacity shows utilities suppliers are leaking billions of pounds in revenue and don’t know how to prevent it from happening – putting jobs at risk.
The report offers analysis on the findings of a new independent survey of 50 professionals with responsibility for profit and loss working in energy and water.
The research shows that on average businesses in utilities are failing to collect 4.68% of the revenue they’re owed, creating a £3.3 billion finance black hole. Furthermore:
- 76% of utilities suppliers are aware revenue leakage is a major problem, but don’t know how to prevent it – with 82% likening revenue leakage to ‘death by a thousand cuts’.
- Almost three quarters (74%) say revenue leakage will lead to people losing their jobs, with 70% saying revenue leakage is hampering growth and profitability.
- Overall, 78% say poor quality data is a major source of revenue leakage, with 84% saying that a lack of quality data prevents them from collecting earned income.
However, almost half (49%) of the revenue leaked can be attributed to avoidable issues, such as poor reconciliation, lack of oversight, governance and controls, human error, and inaccurate data.
“While most utilities suppliers are aware they have a revenue leakage problem, the size of the problem may come as a surprise,” said Hakim Akayour, Head of Revenue Assurance at Sagacity. “Small drips can add up to a large amount of revenue going down the drain. For example, we helped a supplier that was giving water to thousands of properties, but not billing them. In some cases, customers had not been billed for two years. We revised their controls to create more accurate billing, and increased collections by £2 million, underlining just how much of an opportunity suppliers have to increase revenues.”
When looking at the causes of revenue leakage, there are several areas that almost all utilities providers slip up on, such as:
- Giveaways and discounts: Almost all (96%) of utilities suppliers give customers discounts (e.g. single person discount) they do not qualify for. Meanwhile 90% continue to give customers discounts they are no longer eligible for – for instance, they previously qualified for a social tariff but have a new job, which means they earn too much to qualify.
- Incorrect billing and poor reconciliation: 88% send bills addressed ‘to the occupier’, which go unpaid, with 72% saying some customers do not receive a bill at all, due to poor data reconciliation. 94% admit they leak revenue due to people moving in or out of properties without informing them, while 92% say problems stem from customers submitting an incorrect reading they have taken themselves.
- Third party mismanagement: 90% of respondents say third parties are to blame for revenue leakage, with 84% reporting working with brokers is more trouble than it is worth, and 80% saying they dread having to work with brokers as they make mistakes. Meanwhile 84% say the majority of mistakes in their database come from brokers, with 60% saying brokers have passed leads with missing data. For 42%, this has led to a customer using another supplier instead.
“Third parties are giving utilities suppliers headaches, but it’s not as simple as switching to a different broker to improve results. Businesses urgently need to prioritise eliminating poor processes and getting better oversight, to drive returns from brokers,” added Anita Dougall, CEO & Founding Partner at Sagacity. “We worked with a ‘Big Six’ energy client that was struggling to convert third party leads, and improving their processes increased their revenue by more than £4 million. In another instance, we identified 18,000 sales where brokers were overpaid, due to lack of processes for discount deductions.”
“It can be hard to know where to start, but there are solid steps suppliers can take. The first step towards regaining control is pinpointing processes that cause leakage the most often. For instance, tasks involving manual intervention, complex hand-offs, high customer volumes and time pressures, as these can be absolute breeding grounds for problems. Combined with this, data quality must be absolutely paramount – ‘garbage in, garbage out’. Utilities suppliers must make sure data is being captured correctly, then regularly cleansed and updated. Getting a handle on processes and driving data quality will stem the tide of revenue leakage.”