Recently, during the question/answer session after I concluded my “Improving Revenue Collections for Utilities” presentation, I was asked how important I think it is for utilities to complete the cut-off process before bills are mailed again.

This is an excellent question and, while I think it is very important, isn’t something I’ve been asked before. Let’s examine why I think it is important to complete the delinquency cycle – penalty, any final notice and cut-off for non-payment – before the next month’s bill is mailed.

Reduce days of exposure

The most important reason to complete the entire delinquency process before bills are mailed again is to reduce the days of exposure. This is a term I use to refer to the number of days of service that have elapsed by the time you terminate service for non-payment. Days of exposure directly impacts how much you are owed if your customer leaves and doesn’t pay their bill after being cut off for non-payment.

In Utility Information Pipeline #8 (you can read it here if you missed it), I wrote about minimizing days of exposure, so I won’t go into great detail here. Completing the cut-off process before bills are mailed again for the next month is an important step in reducing days of exposure.

Do away with artificial due dates

Does your utility have a “due date” and another “penalty date” a few days later? If you do, trust me when I tell you that your customers consider the day before your penalty date to be the “real” due date.

Customers generally consider the due date to be the last day they can pay before being penalized. Providing a grace period between the due date and penalty date only serves to extend the actual due date in your customers’ mind. This causes your published due date to be nothing more than an artificial due date that is largely ignored by your customers.

Avoid confusion with due dates when the next bill is mailed

If you complete the entire delinquency cycle before mailing the following month’s bill, you avoid any confusion over which bill is due on what date when your customer receives the current bill. By completing the entire delinquency process in a timely fashion, those customers who don’t pay until they are cut off (and every utility has them!) will have paid before the next bill is mailed.

For example, if your due date is 20 days after bills are mailed and you cut off five days after the due date, your customers still have five days to pay before bills are mailed again.

Improve cash flow

Finally, anything you can do to get your customers to pay their bills sooner improves cash flow and helps your utility’s bottom line.

If your cut-off for non-payment doesn’t happen before you mail bills the following month, I encourage you to consider changing your policy so that it does. If you have any questions about cut-off policies, or how you can improve operations in general, please contact me to learn more about what a business review could do for your office. I can be reached by calling 919-232-2320 or e-mailing me at gsanders@logicssolutions.com.

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© 2012 Gary Sanders