If you’re one of those people that always pays your bill late, but in full, your service provider loves you. See, that late fee you end up paying is pure profit. It makes you an extra special customer. So operators of all sorts want to be smarter about making a distinction between you – the extra profitable customer – and the delinquent payers who end up being disconnected.
If you’re paying a late fee, you’re basically upping your ARPU without consuming any extra services. And chances are pretty good that if you’re treated well, you might even take up some extra services and pay for them every month in full, albeit a bit late.
Dr. Naras Eechambadi, general manager for CSG International’s Quaero, says that about 10 percent of customers pay late every month, “but only about a quarter of them are people who won’t pay at all.” The trick for operators is to predict each month which are the folks who will pay late, but in full, and who will need to be disconnected.
The disconnects are important to predict, especially for anyone offering Pay TV services. Eechambadi explains that Pay TV providers have to pay their content partners on a per subscriber, per day basis. Any reduction in the time it takes to close out a disconnect represents hard, measurable expense reduction.
He says that the typical collections process begins the day after a payment is due – or as soon as its officially late. Disconnects don’t typically happen until somewhere between day 55 and day 65, depending on the service provider. Around day 48 the final letter goes out to notify the delinquent customer that the disconnect is coming. Day 50, however, “is the magic number,” Eechambadi says. Due to regulatory barriers, day 50 is the earliest a disconnect can happen.
By examining historical data, Quaero was able to create a predictive model for Time Warner Cable that allowed the operator to identify on day 30 which late payers were good customers, and which would actually go to disconnect. As a result, Time Warner was able to trim its collections cycle to the magic 50 day mark, in turn saving 5 days worth of content partner payments per delinquent customer per month. “You might have 50,000 to 100,000 people in this situation per month, so the numbers start to add up quite a bit,” Eechambadi says.
He admits, however, that shrinking the disconnect window ultimately wasn’t the hard part. The real challenge comes in changing the way that valuable, late paying customers are treated throughout the collections process. “In most organizations,” says Eechambadi, “once someone is late it becomes the purview of finance.” Finance, however, is concerned with collections – not with customer experience. Finance groups don’t tend to worry too much about whether they are treating good customers abrasively. In order to change the tone of collections communications that are directed to good, late payers – much less turn those communications into opportunities to engage customers in positive ways – “there’s an organizational change here that may need to occur,” Eechambadi says.
The final question is whether it is ethical for operators to continue to charge late fees to customers they know will pay in full. In this instance, I suspect “caveat emptor” has to come into play. These days, there’s no shortage of electronic tools available to remind a person to pay a bill on time, or to make an electronic payment automatically every month. If you fail to use these methods and end up paying late fees regularly, you have no one to blame but yourself. That doesn’t make late fees ethical or justified. But if you do pay them, then maybe it’s reasonable to expect your service provider to be a little bit nicer to you every month.