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Thames Water will pay external debt collectors up to £17.5 million over the next three years to recoup unpaid customer bills.
That equates to almost half of the company’s current bad debt level, which stands at £36 million.
A tender published by Thames states that the debt recovery contract covers 447,000 active customer accounts and 141,000 closed accounts over four separate lots.
The services would be used when Thames has exhausted its internal collection strategies and customers have not responded to communications or made any attempt to begin repaying their debt, a spokesperson said.
It currently uses five agencies, the contracts for which are up for renewal.
The company said it had redesigned its customer debt journey to deliver the right treatment path for customers while ensuring support for financially vulnerable householders.
Bad debt in the water sector – of customers who do not pay their bills, rather than cannot pay – is more than £2 billion. This adds £21 to other householders’ bills. Thames’ bad debt reached £36 million in September 2022.
Thames said the outsourcing was “mainly on a commission basis” with some customer specific outcomes chargeable on a fee structure. This is inline with industry practice and Ofwat’s Paying Fair guidelines for supporting in-debt customers.
“With the cost of living rising, we recognise the importance of collecting debt in a socially responsible manner and as result we are seeking partners who are committed in supporting our customers on this journey while helping Thames Water achieve our goals.”
The initial three-year contract will have an option to extend by an additional two years for collect and trace services as well as litigation and field services in the later part of the process.
Last year the regulator updated guidance on how water companies should treat customers in debt.
Its Paying Fair guidelines stipulated that customers in debt must be treated fairly and empathetically and the company should offer alternative payment options. Ofwat said that when a company becomes aware that a debtor is actively engaging with a debt advisor, it should stop chasing payments.
Enforcement action should be viewed as a “last resort” when all other options are exhausted and should not be used for customers known to be in vulnerable circumstances.
Affordability is a key theme of Utility Week Forum in October. The two-day event explores this, along with resilience how utility businesses can plan and invest in the future while keeping bills affordable for all customers.
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