By Miyelani Holeni
Municipalities and utilities across the continent are facing severe pressure regarding their cash flows, emanating from their clients either paying them late or not at all. Their position before the Covid-19 pandemic has deteriorated significantly, necessitating the need to adopt new strategies to generate, collect, manage, increase, and diversify their revenue.
Municipalities and utilities are the centre of service delivery of water, sanitation, electricity, collection of waste and many more services that keep cities and towns alike ticking. On the one hand, municipalities are the engines of development as they host cities, towns, industry, and agricultural land, while utilities are responsible for the generation of electricity, the harvesting of water, and the transmission and distribution of such products to citizens.
Revenue is a science and is based on a value chain that is interdependent and synchronised. The revenue value chain comprises 10 components, namely: town planning and valuation, property rates, planning and installation of consumption measurement, billing and invoicing, payments, credit management, debt management, legal and institutional policies, and customer relationship management. All these components must work together towards the receipt or realisation of revenue.
Most municipalities do not have a revenue management and enhancement strategy in place, and even worse, they lack the capability to drive the generation, completeness, protection, and growth of revenue. In addition to strategy, capability, and capacity, it requires a particular mindset to be adopted across the entire organisation. The revenue mindset is one that would drive municipalities to manage the existing revenue, find new sources of revenue, and plough the revenue into what is regarded as a catalytic project. A revenue mindset must be adopted across all municipalities, regardless of the function of a department.
The receipt or realisation of revenue into the coffers of an organisation is the result of all the components of the revenue value chain working in tandem. Revenue collection is an activity that is performed within the debt management component of the revenue value chain. It is an activity that is at the tail end of the revenue chain, and it requires a particular strategy to bring in maximum revenue.
Revenue collection is dependent on having complete data on the customer that is organised into a customer profile [master data and transactions]. This is done by knowing the customer’s psychographic data, which determines the crucial action of contactibility. Data is useless until it has been processed into information that delivers knowledge and insights on the customer and the amount owed.
A collection strategy should ideally be based on the payment quadrant, which is crafted through data-driven analysis and diagnosis. The revenue collection effort is also guided by well-crafted policies that are based on legislation and best practises. It is incumbent that the policy framework be not rigid but it must be precise, transparent, and resolute.
The stature that municipalities and utilities hold in society is of great importance, however, they need to be able to pay their way into development. Well-funded cities and towns tend to develop faster, and this leads to many benefits that can be enjoyed by the citizenry, such as increased value of properties, better transportation, better service delivery, and more safe and habitable places.
Revenue collection is an important activity despite being the last activity in the revenue chain because it does not yield as much revenue as the preceding components of the revenue value chain. However, being the activity of last resort, revenue collection does deliver revenue to fund the development of the city and town.
Municipalities and utilities need to observe and implement a revenue management and enhancement strategy based on the revenue value chain in order to realise optimal revenue.
The key to collecting maximum revenue is the development of capability in the form of strategy and leadership, summoning capability by employing highly skilled staff and the deployment of fit-for-purpose technology. The holy grail in the science of revenue is ensuring that an understanding of the components of the value chain and how they interact with each other delivers optimal revenue. Finally, municipalities and utilities must adopt a revenue mindset that enables every staff member to not only seek to improve but also increase revenue.
The confluence of customer relationship management and data enables the revenue function to find the customers who owe the organisation and to understand the reason behind their being in arrears. Knowledge of the reasons why customers are not paying is the basis for devising strategies for unlocking revenue collection. As an aid to revenue functionaries, a payment quadrant has been crafted to measure four architypes of payment behaviour.
These four architypes are non-payers, infrequent payers, grudge payers, and star payers. Non-payers are customers who don’t pay any amount for services consumed, while infrequent payers do pay the full amount, but they skip a month or more. Grudge payers, on the other hand, pay for their consumed services, but they short pay the billed amount every month to the point where arrears build up. It is the star payer who is the darling of municipalities and Utilities because they pay their accounts in full and on time consistently.
* Miyelani Holeni is a Revenue and Local Government expert and Chief Group Advisor at Ntiyiso Consulting Group.
** The views expressed do not necessarily reflect the views of Independent Media or IOL.