Have you seen any of the negative publicity that Detroit is getting for cutting off water to delinquent customers?

I read this story online over the weekend and wasn’t surprised to read that Detroit was finally starting to cut off customers for non-payment.

Poor management

I had occasion to speak with the CFO of the Detroit Water and Sewerage Department last year. At that time, nearly 82% of their receivables were 60 days or older. On top of that, they hadn’t done cut-offs for non-payment in three years. Yes, you read that correctly – three years, not three months!

Could your utility remain solvent if over 80% of your receivables were seriously delinquent and you weren’t doing anything to tackle the problem? Of course not!

As Tom Curtis, deputy executive director of AWWA, stated in the article “If you never shut the water off for anybody, those people who continue to pay have to shoulder the entire cost of a system that is servicing a lot of customers that aren’t paying. That’s not a sustainable business model.”

There is no excuse, other than poor management, for a utility going three years without cutting customers off for non-payment.

Public outcry

Most of the public outcry is over the fact that, suddenly in the heat of summer, some customers who can least afford to pay are without water.

I believe for-profit and investor owned utilities have a responsibility to set aside some of their profits to offer assistance programs for customers who have legitimate hardships.

I don’t feel the same way about municipal utilities or utility districts whose priority is to provide the best service at the lowest rates for their customers. Most utilities I’m familiar with have a working relationship with local social service agencies, church groups, or other charities that provide assistance with utility bills and refer customers with economic hardships to those agencies.

An effective policy is the best way

The article goes on to highlight the case of Hamtramck, Michigan – another financially strapped city – that shut off customers as a way of stepping up their collection efforts. In a year, the city went from a $350,000 deficit to a $2 million fund balance in the water fund.

The article cites an impressive statistic – cutting off 150 customers caused 390 delinquent customers to pay. This bears out what I’ve always believed – adopting and enforcing an effective cut-off policy as part of an overall customer service policy the best way to reduce delinquent accounts.

Have you reviewed your cut-off policy lately?

Is your cut-off policy up-to-date and as effective as it should be? If you’re not sure, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could benefit your organization.

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© 2014 Gary Sanders