Credit Risk and Bad Debt
Understanding Receivables Management problems and solutionsfor the Telecommunications, Media and Entertainment sectors
In the Telecommunications, Media andEntertainment sectors, products and services aresold on both pre-paid and post-paid (i.e. credit)terms. Where credit-terms are given, there areinherent risks to payment:
Those who (unintentionally) cannot afford topay (genuine bad-debt)
Habitual late payment
Those who can pay but refuse (maybe adissatisfied customer )
Those who have been deceptive and do notintend to pay (fraud)It is important to differentiate between these typesof payment risk as the way of dealing with themwill be quite different. Treating all payment risks ina similar way is a common problem and will leadto increased costs, reduced effectiveness of operations and disgruntled customers. All types of customer might fall into any of these categories
Consumer, Corporate, SME etc. Identifying,preventing and managing exposure at the point of sale and throughout a customer lifecycle (throughbehavioural scoring/analytics) has to be constantlyin focus for a Service Provider to maintainmanageable debt levels.Increasingly, it is not only the level of credit riskexposure or bad debt that is in focus, but also theefficiency and effectiveness of the businessoperations, directly affecting operating costs. Awell-designed, thoughtful and innovativereceivables management process and operatingparameters will reduce credit risk, improve on-timepayments and recover more from the bad-debtprovision than the competition. In doing so,Service Providers create a distinct opportunity toallocate resources to other business needs, or simply reduce overall operating costs.Various benchmarking exercises havedemonstrated a common bad-debt to revenueratio range of between 1-
6%, with the ‘best
average’ position at around 2%. Some Service
Providers can get to the magic 1% threshold withsophisticated and pragmatic approaches to creditmanagement, but many jump between peaks andtroughs as they fail to align marketing and productmanagement activities with a sensible creditmanagement policy and operational plans.
Although pre-paid services are aimed atreducing credit-risk and targeted at certain marketsectors, there are a number of issues with pre-paid services that need to be managed
see our separate document on
To grow market share of the higher-ARPU(Average Revenue Per User) post-paid customer segment, many Service Providers areaggressively targeting both business andconsumer segments. The strategy has manypotential benefits:
Leveraging existing infrastructure such asmediation and billing systems, reducingaverage costs and improving margin(AMPU) potential.
Reducing attrition rates, allowing longer-term relationships and efficiencies inmanaging known-customers (e.g. tailoredcollection treatment plans).
Improved revenues through higher averageusage and cross-selling of products andservices that is easier with loyal customersand up-to-date contact information.
Business Assurance | Revenue Assurance | Fraud Management | Receivables Management