End of the protected market: new scenarios for debt collection

Goodbye protection regime

July 1, 2024 marked the end of the protected market for electricity in Italy, opening the door to a more free and competitive landscape. This change will have a significant impact not only on consumers, but also on the utilities sector, with particular reference to credit management.

A freer market, more credit risk

The liberalization of the energy market introduces an element of uncertainty for supply companies: with more choice for customers, competition intensifies, prompting companies to review their business strategies and the prices they offer.

This new scenario could result in increased credit risk for utilities.

Rising credit risk: challenges for utilities

The widening customer base in the free electricity market, with a more diverse pool of users in terms of socio-economic characteristics and payment behavior, is a factor of uncertainty for utilities. Creditworthiness analysis becomes more complex, requiring more sophisticated assessment tools that go beyond traditional financial parameters.

In addition, potential volatility in energy prices due to geopolitical, speculative, or supply condition-related factors could lead some customers to engage in risky payment behavior by delaying or even omitting bill payments.

This outlined scenario exposes companies to a potential increase in credit risk, with possible negative consequences for their profitability and financial stability. It therefore becomes crucial for utilities to implement effective credit management strategies and tools to mitigate these risks.

The adoption of specific credit management software can prove a valuable ally in this process. Such tools, equipped with advanced credit analysis, scoring and payment monitoring capabilities, can support utilities in meeting the challenges of the deregulated market.

New challenges and strategies

To meet these challenges, utilities will need to adopt a more proactive and flexible approach to credit management. They become crucial:

• more advanced credit scoring models, integrating alternative data and artificial intelligence techniques, can enable more accurate assessment of customers’ creditworthiness, even in the presence of nontraditional risk profiles;
• The promotion of automated forms of payment, such as bank direct debit or online payments, which can reduce the risk of default and simplify cash flow management for businesses;
• offering customized installment plans and flexible payment solutions, which can help customers in financial difficulty meet their obligations, facilitating debt collection and averting the onset of arrears;
• the development of timely and efficient debt collection strategies, based on a collaborative approach with customers and the use of legal tools where necessary, which becomes essential to protect the economic interests of utilities and minimize losses from insolvencies.

Effectively managing credit risk in the new free electricity market scenario is a crucial challenge for utilities. Integrating credit management software with other business systems, such as CRM or billing, can create a centralized and automated workflow, improving the efficiency, transparency, and consistency of credit management processes.

Adoption of these instruments is a strategic investment for utilities, as well as helping to mitigate credit risk, optimize collection strategies, promote long-term healthy and sustainable growth, and improve the quality of service provided to customers.