The UK utilities sector is facing a debt crisis on an unprecedented scale. Household energy arrears have surged past £3.8 billion, while water arrears have climbed above £2.1 billion. Around 2.5 million households are already behind on payments
- ≈ £6 billion in combined energy and water debt affects millions of households
- Traditional reactive collections drive up costs while eroding customer trust.
- Prevention-first strategies cut arrears by up to 50 percent while improving customer satisfaction.
- Utilities that act now will shape the market; those who don't will carry unsustainable debt
The prevention imperative is clear: collections alone can't solve it. Traditional models wait until debt has already built up before acting, by which point families are under pressure, trust has eroded, and write-offs escalate.
Prevention offers a different path: spotting risks earlier, engaging customers before arrears mount, and embedding fair treatment at every stage. Done well, it not only reduces debt but builds long-term resilience for utilities and customers alike.
Affordability: The Defining Test for UK Utilities
Energy bills remain volatile, with the Ofgem cap still leaving the average household paying close to £1,800 a year. For many families, that's simply not sustainable. At the start of winter 2024, around five million customers had no energy credit at all, significantly increasing the risk of self-disconnection.
Water customers face similar pressure. Average household bills are forecast to rise by 26 percent in 2025, the sharpest increase since privatisation. With household budgets stretched, arrears are climbing and repayment schemes are struggling to keep pace.
Regulators have made their expectations clear. Ofgem requires energy suppliers to identify and support vulnerable households with tailored repayment options. Ofwat demands fair treatment and stronger customer protection in debt management. Falling short risks penalties and reputational damage.
For providers, higher arrears increase write-offs and collection costs while straining balance sheets. For households, missed payments bring stress and anxiety, often leading to disengagement. In severe cases, families face rationing or disconnection from essential services.
The regulator lens makes the gap starker. Both Ofgem and Ofwat expect early identification of vulnerable customers, flexible repayment options, and proactive engagement. Reactive collections fall short on all counts, while prevention-first approaches align directly with these expectations.
| Regulatory Focus | Reactive Collections (Current State) | Prevention-First Approach (Future State) |
|---|---|---|
| Identifying Vulnerable Customers | Often identified late, once arrears are high; inconsistent application of vulnerability policies. | Proactive use of data/behavioural signals to flag vulnerability early, with tailored interventions. |
| Fair Treatment | One-size-fits-all repayment plans; risks being seen as punitive. | Flexible, personalised payment options that reflect individual circumstances. |
| Customer Engagement | Contact triggered only after default; communication perceived as pressure. | Early, supportive engagement via preferred channels that builds trust and keeps customers in control. |
| Regulatory Alignment (Ofgem / Ofwat) | Higher risk of penalties, enforcement actions, and reputational damage. | Meets or exceeds requirements for proactive support, fairness, and customer protection. |
| Business Outcomes | Rising arrears, escalating write-offs, higher complaints. | Lower arrears, improved recovery rates, reduced complaints, stronger compliance record. |
Why Waiting Costs More Than Acting Early
Collections teams constantly play catch-up, stepping in only after customers are already drowning in arrears.
This reactive approach is expensive and inefficient. Companies pour resources into chasing payments through endless letters, phone calls, and enforcement actions that often lead nowhere.
Most providers still use rigid, one-size-fits-all repayment solutions that completely miss the mark. A family dealing with temporary job loss needs a different approach than someone managing long-term health issues, but systems treat them identically. Customers disengage instead of engaging.
Complaints about debt handling are climbing, regulators are handing out penalties, and both Ofgem and Ofwat are scrutinising every move companies make. Debt management has become a public test of whether you care about your customers.
How to See Trouble Before It Hits Your Balance Sheet
Debt prevention acts before arrears build up. By using data and behavioural signals to identify customers at risk, utilities can intervene with support while bills remain manageable. The goal isn't just to recover money faster, but to stop households from falling into crisis in the first place.
Prevention lowers bad debt by reducing accounts that slip into long-term arrears. It builds customer trust by showing providers are willing to help rather than punish. It aligns with regulatory expectations, as both Ofgem and Ofwat call for proactive engagement and fair treatment of vulnerable households.
Making this shift requires more than new tools. Providers need to move away from chasing debtors and see every interaction as a chance to support customers through difficulty. Prevention reframes debt from a back-office problem to a front-line opportunity to strengthen relationships and build long-term resilience.
The Playbook for Staying Ahead of Debt
Four elements are essential for building a debt prevention model that works:
Dynamic prioritisation ensures the right customers are reached first. AI-driven propensity-to-pay scoring helps providers focus on households most at risk of falling deeper into arrears. Resources go where they have the greatest impact.
Intelligent channel optimisation improves how outreach is delivered. Customers engage when they receive the right message, at the right time, through their preferred channel. Optimising for channel and timing turns communication into genuine support rather than pressure.
Personalised payment plans give households transparent options they can actually manage. Customers can choose partial payments, spread payments over time, or opt for temporary relief when circumstances demand it. These flexible arrangements keep customers engaged.
Vulnerability identification and support embeds fairness into every stage. AI models flag customers who may require extra care, while trained advisors provide empathetic, compliant communication. Vulnerable customers feel supported and regulators see providers meeting expectations.
Together, these capabilities create a prevention-first approach that empowers customers, improves recovery rates, and reduces costs.
How Technology and Empathy Enable Prevention in Practice
Prevention is not a future ambition. It is already transforming how utilities engage with customers and manage arrears. At Firstsource, we bring intelligence and empathy together to design collections journeys that reduce arrears while protecting customers.
Our digital debt collection solutions apply machine learning to create individual customer profiles, segment more than 7,000 account types, and draw on over 200 SMS and email templates for personalised, timely communication. Customers receive the right message, at the right time, through the channel they prefer.
The impact is clear:
- High engagement: 92 percent of customers self-serve and make payments through omni-channel journeys
- Fewer complaints: advanced compliance controls have cut customer complaints by 85 percent
- Better recovery: a UK utility improved arrears recovery by 50 percent while ensuring vulnerable customers were treated fairly
This is prevention in practice with technology that spots risk early, empathy that ensures fair treatment, and measurable outcomes that strengthen both customer trust and provider resilience.
Why Prevention Pays for Utilities
A prevention-first approach makes strong business sense beyond just being good practice.
Cost reduction is one of the clearest benefits. Preventing arrears before they escalate reduces write-offs and lowers the overhead of chasing debt. Collections teams spend less time on crisis management and more on value-adding customer care.
Compliance is another driver. Ofgem and Ofwat have placed affordability and fairness at the center of their oversight. A prevention model aligns directly with these expectations, reducing the risk of penalties and strengthening relationships with regulators.
The customer experience impact is equally powerful. When you help households stay on track, you build trust and loyalty. This translates into stronger retention, fewer complaints, and a reputation for fairness at a time when public confidence in utilities is under pressure.
Finally, prevention builds long-term resilience. With better forecasting and more predictable cash flow, providers can maintain sustainable margins while still delivering on their service commitments.
Three Steps You Can Take Now
Prevention requires investment and focus, but you can start acting today.
- Build your data and analytics capabilities. You need predictive models that spot trouble early and systems that connect insights across the customer journey. This becomes your foundation for stepping in before problems escalate.
- Change how you measure success. Stop focusing on debt recovery and start tracking debt prevention. When teams are rewarded for keeping customers out of trouble rather than chasing them afterward, everything changes.
- Find the right technology partners. Working with experienced service providers can fast-track your progress. Firstsource brings proven experience in debt prevention, blending predictive tools with deep domain expertise to help utilities move quickly from vision to execution.
These changes transform collections from a cost center into a driver of business resilience and stronger customer relationships.
The Future Belongs to Prevention-First Providers
With household debt climbing and trust eroding, traditional collections approaches are failing both customers and providers.
Prevention changes everything. When you spot risks early, support vulnerable customers with genuine empathy, and make affordability part of daily operations, empowering customers to take control.
Companies making this shift will emerge stronger with deeper customer loyalty, better financial performance, and reputations that open doors. Moving to prevention means building a sustainable future where utilities can deliver essential services, maintain financial stability, and earn community trust.
The evidence is clear:
- £6 billion in arrears is weighing on 2.5 million households across energy and water
- Prevention-first approaches have improved arrears recovery by up to 50%
- Digital, empathetic strategies have driven 92% self-serve engagement and cut complaints by 85%
Utilities that adopt prevention-first now will shape the market. Those that don’t will be left carrying unsustainable debt. Firstsource partners with utilities to accelerate that shift, combining data, technology, and empathy to deliver measurable impact today.
We make it happen.