Utilities ‘leaking’ £3bn in annual revenue

Energy and water companies are “leaking” more than £3 billion in revenue annually and do not know how to prevent it happening, new figures have revealed.

A report by data consultancy Sagacity has been published following a survey of a number of financial professionals, including chief strategy officers and chief financial officers, in energy and water companies.

The research shows that, on average, utility businesses are failing to collect 4.68% of the revenue they’re owed, creating a £3.3 billion “finance black hole”.

In total:

• 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”;
• 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

Yet the research found that almost half (49%) of the revenue lost can be attributed to avoidable factors such as poor reconciliation, a lack of oversight, governance and controls, human error, and inaccurate data.

Among the leading causes of revenue leakage include customer discounts, with the vast majority (96%) of suppliers giving customers discounts they do not qualify for. Meanwhile 90% continue to give customers discounts they are no longer eligible for.

Another area is incorrect billing and poor reconciliation, with 88% sending bills addressed ‘to the occupier’ which go unpaid and 72% saying some customers do not receive a bill at all, due to poor data reconciliation. Almost all (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 parties such as brokers are also blamed for revenue loss, with 84% reporting working with brokers is “more trouble than it’s worth”, and the same number 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.

Hakim Akayour, head of revenue assurance at Sagacity, said: “While most utilities suppliers are aware they have a revenue leakage problem, the size of the problem may come as a surprise.

“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.”

Anita Dougall added: “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.

“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.”