How well are you doing collecting final bills…?

A previous issue dealt with improving final bill collection rates. So how do you know if your efforts are paying off?

In the final issue of last year, looking back at 2013 and looking ahead to this year, I solicited ideas for newsletter topics. Thanks to a couple subscribers, I got several good ideas. One of those asked about benchmarking collection rates for final bills.

Review your aging report

Provided your billing software offers an aged trial balance, or some other aging report, using the totals from this report can provide an effective way of tracking the success of your final bill collection rate.

If your utility bills monthly, and you have any semblance of a cut-off policy, it’s safe to assume any outstanding balances over 60 days old are final billed accounts that haven’t paid.

Do you have balances over 60 days old that are still active accounts? If so, you may want to review your utility’s days of exposure.

Calculate your delinquent receivables percentage

Calculate the percentage of your accounts receivable that is delinquent by dividing the sum of 60 day and 90 day arrears by the total accounts receivable:

Delinquent Receivables Percentage

Track your trends

If you compute your delinquent receivables percentage over the course of several years, you can plot this on a graph and observe the trend line.

If it is trending downward, congratulations! Your final bill collection rate is improving.

Take write-offs and debt set-offs into account

If you write off seriously delinquent accounts on a infrequent basis (for example, once a year) be sure to take this into account. For obvious reasons, your delinquent receivables percentage will drop significantly immediately following a write-off.

Likewise, for utilities in states with debt set-off programs, if you are aggressive in pursuing debt set-off collections, you will see a sizable increase in delinquent collections in March and April.

Following the trend over the course of several years will help offset the impact of write-offs and debt set-off collections.

Are you satisfied with the results?

Is your final bill collection rate as good as you would like it to be?

If not, it may be time to review your policies and procedures. Please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn more about how a business review could assist you with improving your final bill collection rate.

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© 2014 Gary Sanders

Are you creating extra work for yourself?

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

What is your utility’s “corporate culture”…?

Three issues ago, I wrote about presenting a more customer friendly utility bill. This led a reader to ask “You advocate no-nonsense, tough policies with customers and yet, you write about being ‘customer friendly.’ How do you reconcile those two positions?”

We often read about “corporate culture” in the business world. I believe that utilities can effectively fashion an organizational culture that includes sound (some would say “tough”) business practices and policies while still being customer friendly.

Adopt sound business practices and policies

Most utilities, whether government agencies, non-profit entities or for-profit enterprises, operate as monopolies. This means your customers can’t take their business elsewhere and you have an obligation to provide a service at the lowest possible rates.

Maintaining the lowest possible rates requires operating your utility as efficiently as possible while protecting against losses. Losses for a utility can include theft of service or embezzlement, but most often are seen in bad debt accounts that must be written off.

Minimizing written-off accounts can be best accomplished by implementing policies and procedures that ensure:

I don’t believe enforcing fair and effective policies and procedures is at odds with being customer friendly if you have communicated these business practices to your customers. Failing to clearly inform customers of your policies and procedures is bad business and borders on deception.

Another imperative to being customer friendly is treating your customers equitably and applying policies fairly to all customers. This includes not granting special favors to influential or politically connected customers or friends and family members of utility employees.

Effectively publicize your policies and procedures

The key to informing your customers of your policies and procedures is to use all possible means to do so.  This includes:

It is possible to be “customer friendly” and operate an efficient utility

What is your utility’s organizational culture? Do you treat your customers fairly and hold them all to the same standards? Do you take advantage of every means possible to communicate your policies to your customers?

If you do all the things listed above, I believe it is absolutely possible to have an organizational culture that allows you to be both customer friendly and still operate a utility that adheres to sound business practices.

How does your utility measure up?

Is your utility is operating as efficiently as possible? Are you are as customer friendly as you could be?

If the answer to either of these questions is “no” (or if you’re honestly not sure of the answer), please contact me by calling 919-232-2320 or e-mailing me at gsanders@logicssolutions.com to see how I can assist you.

© 2012 Gary Sanders

Improving final bill collection rates

It is no secret that the key to avoiding bad debt and write-offs is getting your customers to pay their final bills. Today, let’s take a look at some steps you can take to improve your final bill collection rate.

Timeliness of Sending Final Bills

How frequently do you mail final bills?

  • If you bill once a month (or less frequently) do you wait until the next regular billing to send final bills?
  • If you bill several times a month, do you still mail final bills with the next regular billing cycle for any customers who have left?

If you answered “yes” to either question, I encourage you to consider sending final bills more frequently. I recommend mailing final bills every week, for accounts that were closed during the previous week, even if it means only printing a few bills. It is only human nature that the sooner someone receives a bill, the better likelihood that they will pay the bill. Anyone who has ever moved to a new home or apartment is well aware that there are expenses associated with the move. And you want to be sure that your final bill is paid before your former customer starts buying furniture for their new home!

Get a Forwarding Address

When a customer calls to let you know that they will be moving and requests that you terminate their service, do you ask for a forwarding address? If not, I strongly encourage you to start doing so. Only the most conscientious of customers will make an attempt to pay a bill they never received. Being sure that your customers receive their final bills is the single most effective way to insure that they will pay that final bill.

US Postal Service Endorsements

Applying the proper US Postal Service endorsement makes a big difference as to what is done with a bill if you mail it to your former customer’s old address and they have a change of address on file with the Postal Service. Below is a table of the four types of endorsements offered by the Postal Service:

Source: http://pe.usps.com/text/qsg300/Q507d.htm

As you can see, which type of endorsement you use makes a difference as to what happens if the bill can’t be delivered as addressed. I encourage you to be sure that you are using the type of endorsement that best suits your organization’s needs.

Do you send delinquent notices to final billed accounts?

If you don’t send delinquent notices to final billed accounts, I recommend that you start. In the confusion of moving and getting settled in a new home, bills can be misplaced. Often, a delinquent notice is all a customer needs to remind them that they haven’t paid their final bill.

If you have questions about your final bill procedures, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com.

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© 2011 Gary Sanders