How do you account for returned checks?

From time to time, I get asked about the best way to handle returned checks. Let’s take a look at a couple things I always recommend.

Do post the returned check to the customer’s account

Some utilities choose not to post the returned check to the customer’s account, instead holding the check until the customer honors it with cash. This is a bad business practice for several reasons.

The history of past returned checks is often used to decide whether to continue accepting checks from a customer. If previous bad checks aren’t in the system, this becomes more difficult to determine. If your ordinances or policy allows for it, a history of returned checks can be reason to charge or increase a security deposit.

If the returned check isn’t part of the customer’s balance, it can be overlooked when charging late fees and selecting accounts for the cut-off list.

If you offer a fully integrated online bill pay system the customer can see their balance and honor the returned check with an online credit card payment.

Also, be sure you add the returned check fee to the customer’s account. This is just as much a part of what they now owe as the returned check itself.

Don’t reverse the original payment

Many billing systems go to all the trouble of reversing the original payment when a returned check is processed. With these systems, if a check is returned that was originally applied to services in multiple funds (for example, electric, water, and garbage), the system will debit the accounts receivable and credit the cash accounts in each fund.

I recommend using a single returned checks receivable account

Rather than doing all that, I recommend using a single returned checks receivable account. In a multiple fund environment, this is usually in the General Fund (following the theory that processing returned checks is a general administrative task). However, if your receivables are heavily skewed toward one of your enterprise funds, you could choose to put the returned checks receivable account in this enterprise fund.

Why use a returned checks receivable account?

The case for using a returned checks receivable account can be made for a couple reasons:

Reinstating the original accounts receivable technically isn’t a correct accounting practice because you did collect the bill, but the check bounced.

By tracking returned checks separately, you are maintaining a subsidiary ledger of all outstanding returned checks. At any point in time, adding up all your returned checks should agree with the balance of the retuned checks receivable account.

Need assistance?

If you have questions about processing returned checks or any other part 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

2015 Utility Fee Survey Results – Part III

This is the last of three consecutive Utility Information Pipelines reporting the results of the 2015 Utility Fee Survey, an update to the original Utility Fee Survey I conducted in 2012. 106 utilities, representing 19 states, ranging in size from 83 to 90,000 active accounts participated in the survey.

The first issue summarized the demographics of the survey respondents as well as water and sewer tap and impact fees. The last issue dealt with delinquent fees and policies. Today’s issue explores the remaining fees.

If you’re interested, here are the results from the 2012 Utility Fee Survey:

2012 Utility Fee Survey Results – Part I

2012 Utility Fee Survey Results – Part II

2012 Utility Fee Survey Results – Part III

Clicking on any of the graphs will open a larger image in a new window.

Returned check fees

Of the 106 participating utilities, 105 charge a returned check fee. Returned check fees range from $6.00 to $50.00, as this graph illustrates:

Returned Check Fees

Application fees

In Utility Information Pipeline #10, I wrote about application for service best practices. One of my recommendations was to charge a non-refundable application fee, in addition to any security deposit, to all new accounts. I’m pleased to report that 55 of the 106 utilities (representing 51.9%) responding to the survey charge such an application or administrative fee. This is down slightly from the 52.3% reported in the 2012 Utility Fee Survey. These application fees range from $5.00 to $100.00 as shown below:

Application Fees

Meter reread fees

25 of the 106 utilities (or 23.6%) charge a meter reread fee if the customer requests their meter be reread. This is up from the 18.2% charging a meter reread fee in 2012. In many cases, this fee is waived if it turns out the customer was correct and the utility misread the meter. Of the utilities that charge a meter reread fee, the fee ranges from $5.00 to $50.00 as this graph shows:

Meter Reread Fees

Meter tampering fees

78 of the 106 utilities (or 73.6%) charge a meter tampering fee. This is up from 60.2% charging a meter tampering fee in 2012. Nine utilities charge the actual cost of repairs or cost plus an administrative fee. Four more utilities recover their costs through the judicial system. The remaining 65 utilities charge a flat fee ranging from $15.00 to $1000.00 as shown below:

Meter Tampering Fees

Convenience fees

One of my earliest issues explained why I believe utilities should accept credit cards. Of the 106 utilities responding to the survey, 86 of them (or 81.1%) accept credit cards. I’m pleased to report that this is an increase from 62.5% three years ago. Of the 86 that do accept credit cards, 40 of these charge a convenience fee on at least one form of credit card payments as shown below:

Convenience Fees

The convenience fees charged by these utilities are too diverse in how they are assessed to be graphed, so they are presented here in a table.

Other fees

In addition to the fees that have been described in the three results issues, the survey asked what other fees utilities charge. Below I’ve listed a few of the more creative fees that were reported:

Meter test fee

A number of utilities charge a fee if the customer requests that their meter be tested. The survey didn’t specifically ask about meter test fees, however one utility volunteered that they only charge the fee if test determines the meter is registering correctly. Hopefully all utilities follow this policy because the customer is probably doing you a favor if the meter test reveals the meter is registering incorrectly.

Return trip fee

When turning a meter on, most utilities will not leave the water on if the meter indicates water is running inside the house and no one is home. This requires the utility to make a return trip when the customer is home to turn the meter on again. Several utilities charge a return trip fee to cover the time and expenses involved in returning to the customer’s home.

Same day connection fee

A number of utilities routinely provide next day service for activating new accounts. A few of these utilities charge an additional fee for providing same day service.

Field collection fee

Most utilities have adopted the best practice of not collecting money in the field on cut-off day. At least one utility still allows customers to pay the field technician to avoid being cut off and they charge an additional $25.00 to provide that service.

A special offer

I still have a couple slots left for the special offer I’m offering 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 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. An on-site presentation of the report can also be arranged for an additional fee, plus travel expenses.

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.

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© 2015 Gary Sanders

Interesting early results

If you read the last Utility Information Pipeline issue, you know it included an invitation to participate in the 2015 Utility Fee Survey.

With 37 utilities participating in the Survey already, I was surprised to see how many aren’t charging the maximum returned check fee allowed in their state.

Early returned check fee results

Surprisingly, the number of utilities charging less than, more than and exactly the maximum returned check fee for their state are almost equal. Here are the early results (clicking on the image will open a larger graph in a separate window):

Early returned check fee results

Even more surprising is that one utility doesn’t charge a returned check fee at all. Why would you want to absorb the charges from your bank and not pass them on to the customer who caused you to incur the fee?

I wrote about returned check fees a couple years ago and included a link to a document that outlines the maximum fee by state. This document also includes a reference to the statue regulating returned check fees in each state. You might want to take a minute to review how your returned check fee compares to the maximum allowable fee in your state.

Still time to complete the 2015 Utility Fee Survey

If you haven’t yet participated in the 2015 Utility Fee Survey and would like to, please click here to complete the survey. It should take less than five minutes to complete.

If you have any questions, please feel free to e-mail me at gsanders@logicssolutions.com or call me at 919-232-2320.

I’m looking for as much participation as possible in the survey, so please feel free to pass this on to your colleagues at other utilities.

Thank you in advance for your participation in the Utility Fee Survey.

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© 2015 Gary Sanders

Are you missing out on revenue from returned checks?

Does your utility charge the maximum fee allowed in your state for returned checks? If not, you are missing out on revenue you could (and should) be collecting.

Returned check fees by state

The maximum allowable returned check fee varies from state to state, ranging from $20 to $50. Here is a document outlining returned check fees by state, including references to the statute regulating the fee in each state.

Fee Survey results

Last year, I conducted a Utility Fee Survey that encompassed a number of different fees, including returned check fees. Here is a link to the results of the survey.

Eighty-eight utilities responded to the survey and, of those, eighty-six charged a returned check fee. In one of the more surprising results of the survey, of the 86 utilities that charged a returned check fee, 24 charged less than the maximum fee allowed in their state. That amounts to 28% of the responding utilities!

Why not charge the maximum allowed?

Why would your utility charge less than the maximum allowable returned check fee? It takes time and effort on the part of your staff to collect bad checks, so why not recover these costs from the customers who incur them?

If it costs more to collect returned checks than you charge in fees, the rest of your customer base ends up paying those additional costs through your rates.

Is your fee posted conspicuously?

Several states have requirements that a notice advising customers of your returned check fee be posted conspicuously at the point of sale. For walk-in customers, this means posting a sign in your lobby. I also recommend including a statement on your utility bill that defines your returned check fee.

How do your fees compare?

If you’ve ever wondered if you are charging appropriate fees, give me a call to find out how a personalized fee consultation would help you.

As part of the fee consultation, 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’re interested, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com.

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© 2013 Gary Sanders