3 ways to assist customers who can’t pay on time

Unless your utility is an anomaly, each month you have customers who, for a variety of reasons, can’t pay their bill on time.

But, before we get to that, here are the results of last issue’s poll regarding a loose coin policy:

accepting-coins

Payment Plans

The usual scenarios for customers having difficulty paying their bill range from wanting to extend their due date a few additional days to requesting a payment plan for repaying a very large bill over time.

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Let’s look at the three most common forms of payment plans utilities offer customers for additional time to pay their bills.

Extensions

Extensions are generally used to give customers a few additional days to pay after the due date. Some utilities will defer the late fee when granting an extension, but most use extensions to delay the cut-off process. Some utilities will still assess the cut-off fee (or whatever you call it), but not terminate service, while others will waive the fee provided the extension is paid on time.

Most utilities limit the number of extensions a customer may have in a given period of time (for example two in any year) and some will only grant extensions to customers with a good payment history. The results of the 2012 Utility Fee Survey revealed one utility charges a $5.00 payment extension fee.

Installment Service

Installment services allow you to divide a large outstanding balance into manageable amounts which are billed each month as part of the utility bill. This requires temporarily adjusting the outstanding balance off the account. As each monthly installment is billed, the outstanding balance is gradually added back to the account until it is fully repaid.

With an installment service, the account still qualifies for the cut-off list if the total bill, including regular monthly charges and the installment amount, is not paid on time.

If your billing software supports installment services, the service will be automatically deactivated once the final monthly installment is billed. Should the customer close the account prior to all of the installments being billed, the outstanding balance will be added to their final bill.

Payment Arrangements

Payment arrangements differ from installment services in that they are used when a customer wants to make multiple, prescheduled payments between billings rather than a single payment due with each bill.

Payment arrangements are a little more work to manage than installment services, but they provide your customers with more flexibility. If your billing software supports payment arrangements, it should allow you to schedule each promised payment date and amount. If your customer misses a scheduled payment, the software should detect this and notify you so you can take whatever action your policy dictates.

Are you offering payment plans?

If your utility doesn’t offer payment plans, or if the way you administer them seems awkward and time consuming, please give me a call at 919-232-2320 or email me at gsanders@logicssolutions.com for more information about how a business review could help improve your operation.

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© 2016 Gary Sanders

Reader Spotlight – City of Graham

This is the first in what I hope becomes a regular feature of the Utility Information Pipeline that I’m calling “Reader Spotlights”. In each Reader Spotlight issue I will highlight an initiative undertaken by a reader of the Utility Information Pipeline.

Effective July 1 of last year, at the start of the current fiscal year, the City of Graham North Carolina changed the way they assess late fees and the amount they charge as a cut-off fee for non-payment. They also implemented, for the first time, a fee for initiating service.

Frankie Maness, Graham City Manager, said “Delinquent accounts have been a longstanding problem for the City and we have debated many times on methods to mitigate the costs. During this past budget season I ran across a Utility Information Pipeline from 2012 that indicated our fees, when compared to our peers, were way overdue for an update. With Gary’s assistance, we have now implemented changes and the results are starting to show increased revenue and a reduced burden from these accounts. At the same time, we implemented a Service Initiation Fee which has also generated additional revenue.”

With Gary’s assistance, we have now implemented changes and the results are starting to show increased revenue and a reduced burden from these accounts.

If you’re interested, here’s a link to the 2015 Utility Fee Survey results issue with more current data than the issue Frankie referenced above.

Let’s take a look at the changes they implemented…

Change in how late fees are calculated

Prior to July 1, Graham charged a flat $5.00 late fee to all customers, regardless of the amount of the past due bill. Effective July 1, they implemented a hybrid late fee of 2% of the outstanding balance with a minimum of $5.00.

For the period of July through December, this minor change in the way late fees are calculated impacted only 2.85% of the customers who were charged a late fee. However, it resulted in a 16.97% increase in revenue from those customers!

Here is a graph of the late fee amounts over the $5.00 minimum that were charged (clicking on the any of the graphics will open a larger image in a new window):

Graham Late Fees in Excess of Minimum

As you can see, nearly half of the customers who were impacted still paid $10.00 or less in late fees. However, the top 15 customers accounted for nearly $3,000.00 in increased revenue. In fact, in spite of the increased late fees, one account in the top 15 was still late every month! Your utility doesn’t have any customers like this, does it?

A month-by-month comparison of the same period from the previous year shows the number of accounts charged a late fee didn’t change appreciably:

Graham Number of Accounts Charged Late Fee

In fact, over the same period, 95 more customers were charged a late fee in 2015 than 2014.

Increased cut-off fees

At the same time, Graham increased their cut-off fee (they wisely call it a Nonpayment Fee) from $15.00 to $40.00. This higher fee resulted in 24.33% fewer customers on the cut-off list generating 101.79% more revenue! The details are shown below:

Graham Cut-Off Fee Comparison

Unlike the change in late payment penalty, this increase in the nonpayment fee did have a significant impact on the number of customers on the cut-off list, as compared to the same period the year before:

Graham Number of Accounts Cut-Off

Interestingly, the increased cut-off fee reduced the number of accounts on the cut-off list from 3.20% to 2.42% of Graham’s customer base. This moved them from the “room for improvement” to “normal range” on my acceptable range scale for accounts on the cut-off list.

New service initiation fee

The third initiative in the FY 2015-2016 budget for the City of Graham was the establishment of a Service Initiation Fee. This is an administrative fee charged to each new customer applying for utility service and is designed to recoup the cost of initiating service.

For the period of July through December 2015, this new fee generated $3,720.00 in additional revenue.

How up-to-date are your fees?

If, like the City of Graham, you think your fees may be outdated or in need of review, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help your utility.

A special offer

To celebrate the inaugural Reader Spotlight issue, I’m offering a special offer to the first five Utility Information Pipeline readers who respond. If you are one of the first five to respond, I will conduct a personalized fee consultation for one-third off the regular price! That’s $1,000 rather than the usual $1,500 price for this service.

I will review your utility’s current fee schedule and conduct an in-depth phone assessment to learn more about your fees. You will receive a presentation quality document illustrating how your fees compare with other utilities. Also included will be my recommendations for revising any existing fees and suggestions of new fees you should consider charging.

If you are interested in this special offer, please contact me by calling 919-232-2320 or e-mailing me at gsanders@logicssolutions.com. Remember, the discounted special offer is only available to the first five people who respond.

Would you like to be featured in a Reader Spotlight?

Has your utility adopted new policies or streamlined procedures as a result of something I’ve written here or presented at a speaking engagement?

If so, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to discuss including your initiative in a future Utility Information Pipeline.

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© 2016 Gary Sanders

Do you honor postmarks for late payments…?

Quite the surprise to me, two different utilities I visited in the past month both honor payments postmarked by the due date as on-time payments, even if the payment isn’t received in the utility office until days after the due date.

Lots of additional work

In a time when most utility offices are trying to find ways to be more efficient (think automated meter reading , outsource bill printing, and online bill pay), honoring postmarks increases your workload twofold:

  • The person opening the mail must examine the postmark of every mail payment received after the penalty is applied.
  • For any payments that were postmarked before the due date, an adjustment must be entered to remove the penalty from the affected account.

In what for many utilities may simply be a case of the TTWWADI syndrome, honoring postmarks continues because no one has questioned the practice.

Are you legally required to do it?

From my research, the best I can tell, this is modeled after the way taxes are collected. Statutorily, some taxing entities (does April 15 come to mind?) are required to honor payments postmarked by the due date as being paid on time.

Do you think your customer’s credit card or mortgage companies check the postmarks of every payment they receive?

If you still aren’t convinced, please take a minute to Google “utility bill payments postmark” and see how many utilities do and do not honor postmarks.

If you aren’t legally required to honor postmarks and you still do, I encourage you to stop. If this is part of an ordinance or a rate tariff, take it up with the governing body or utility commission and revise your ordinance or tariff. If it is simply a policy, alert your customers and change your policy.

Do you have antiquated processes?

If you think the way you process payments (or do anything else in your office, for that matter) is outdated, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help your utility.

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© 2015 Gary Sanders

How do you handle bankruptcies?

What happens when one of your customers files for bankruptcy? Do you have a procedure in place to be sure you comply with the law? This issue takes a look at some best practices for dealing with bankruptcy accounts.

Automatic stay

When a customer files for bankruptcy, you will receive a Notice of Bankruptcy from the bankruptcy court. The Notice of Bankruptcy invokes an automatic stay, meaning you may not take any measures to collect any outstanding amounts owed by the customer. In fact, the Notice of Bankruptcy will state “If you attempt to collect a debt or take other action in violation of the Bankruptcy Code, you may be penalized.” or words to that effect.

Close the account and open a new one

The best way to handle the automatic stay is to immediately close the existing account and open a new one. Be sure not to send a final bill, as this would violate the automatic stay.

Any debts (in your case, any new utility bills) incurred after the bankruptcy filing are not subject to the bankruptcy protections. This means the new account can be billed, charged a late fee, or cut-off for non-payment just like any other account.

Flag the closed account to not be penalized

You will want take the necessary steps to insure no late notices are mailed or penalties are charged to the account in bankruptcy. Depending on how your billing system works, you may need to move the account to a different billing cycle or set flags so the account isn’t subject to delinquent notices or late fees.

Change the mailing address

This is a tip I picked up from a customer, and it’s a great idea. Change the mailing address for all bankruptcy accounts to be your office mailing address. That way, if you miss another step in the process and a late notice is mailed, it won’t be delivered to the customer. Likewise, if you use an automated, outbound IVR system for calling delinquent customers, changing the phone number to your office number may be a good idea as well.

Need assistance?

If you have questions about how you handle bankruptcy accounts or any other aspect of your office operation, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help your utility.

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© 2015 Gary Sanders