It is standard practice for many utilities to keep security deposits in a separate bank account from the operating cash account. This makes tracking and reconciling security deposits easier, but causes unnecessary work for some utilities when applying deposits.

Does your utility write two checks when applying deposits?

When an account is closed and the customer’s deposit is more than their final bill, some utilities end up writing two checks to clear the deposit. These utilities write one check to themselves to cover the final bill and another to the customer to refund the balance of the deposit.

Is there a better way?

Of course there is! A better process is to transfer the full amount of the customer’s deposit from the deposit cash account to the operating cash account when the account is closed. In a practical application, this would happen for several deposits at one time – for example, once per final billing cycle or once a month, for utilities that only send final bills once a month.

This process of applying the deposit creates a credit on the customer’s account and liquidates the security deposit. The credit resulting from applying the deposit will be offset by the customer’s final bill.

If the customer’s final bill is more than the deposit, the net account balance will reflect the balance owed after the deposit is applied.

On the other hand, if the customer’s final bill is less than the deposit, the resulting credit balance is the refund due to the customer.

T-Account illustration

On more than a few occasions in the past, I have resorted to drawing T-accounts to illustrate how this process works for doubting finance directors. So many times, in fact, that a few years ago I took the time to create a document that outlines each step in the process using T-accounts.

If you would like to view this document, please click here.

With any good billing system, each of the steps in this process should be automated. If you are manually applying deposits or writing refund checks, or otherwise find yourself working around your billing software in some way, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com. I would welcome the opportunity to discuss how a business review could benefit your utility.

© 2012 Gary Sanders