From time to time I hear from utilities considering changing from bi-monthly to monthly billing.
Historically, the primary reason utilities have billed less frequently than monthly, for example bi-monthly or quarterly, is the amount of time required to complete the meter reading process. As utilities transition from manual meter reading to automated meter reading, the meter reading process is no longer an inhibiting factor to monthly billing.
Let’s take a look at the pros and cons of making the switch. First, the pros…
Improved cash flow
One of the primary reasons for moving from bi-monthly to monthly billing is to even out cash flow. Rather than receiving large amounts of cash one month and little the next, monthly billing allows the utility’s cash flow to level out month to month.
More convenient for customers to remember when bills are due
Monthly billing is also more convenient for customers. Rather than having to remember if the utility bill is due this month, or if it was last month, your customers will know they have a utility bill due each month.
Easier for customers to budget
Just as monthly billing levels out the utility’s cash flow, it also facilitates easier budgeting for your customers. Going forward, they will know they have a smaller bill due every month.
Facilitates earlier detection of customer leaks
Monthly billing will also lead to fewer losses due to leaks. By reading meters more frequently, excessively large meter readings due to leaks are detected sooner. By doing this, you will be doing customers who have leaks in the future a service by reducing the amount of their water bill.
Less revenue loss from leak adjustments
If your utility provides adjustments for water leaks, monthly billing will also reduce future losses from leak adjustments because the amount of water lost to leaks will be reduced.
Now, for some of the cons…
Doubles workload of office staff
The most obvious disadvantage of monthly billing is the doubling of workload of your staff. Meter readings, billings and delinquent processes all will occur twice as often and the volume of payments and adjustments will double.
Additional expense to the utility
In addition to staff workload doubling with monthly billing, all associated expenses will also double. This includes fuel and vehicle expenses for meter readings, business forms, mailing and postage costs, and paper and consumables for printers.
Habitually late customers will incur twice as many fees
While monthly billing will generally be perceived by your customers as being an improvement over bi-monthly billing, one segment of your customer base will be adversely affected. Habitually delinquent customers who do not pay their bill until being cut off for non-payment will incur both the penalty and reconnect fee every month, rather than every other month.
Is it time to make the switch?
If you are considering moving to monthly billing, please give me a call at 919-232-2320 or e-mail me at firstname.lastname@example.org to learn how a business review could assist you with the process.
© 2013 Gary Sanders
In the past, I’ve written about requiring adequate security deposits. That issue touched on the subject of refunding deposits for good credit.
Generally, I’m not a proponent of returning security deposits until a customer closes their account. However, there are cases where adopting a policy of refunding good credit deposits makes sense.
Excessive interest on deposits
Some utilities are required to pay interest on deposits. In many cases, the interest rate they are required to pay exceeds what they are earning from investments.
For example, I’m currently working with a utility that is required by state regulators to pay 4% interest. If you know of a bank where they can invest their deposits and earn that kind of return, I’m sure they would love to hear from you!
In cases such as this, if the expense of the interest paid to customers exceeds their annual bad debts, refunding good credit deposits might make sense.
A bargaining tool with your board
Many utilities still do not require deposits of homeowners. I don’t recommend this and am a strong advocate of the best practice of requiring a deposit of every new customer.
If the only way you can get your board to agree to everyone paying a deposit is to refund good credit deposits after a period of time, then it makes sense to do so. There is no guarantee that every account whose deposit is returned for good credit will pay their final bill. However, it is still a chance worth taking over not having deposits for any homeowners, some of whom are likely to become bad debt accounts.
If you do refund good credit deposits
There are several things to keep in mind if you do refund deposits for good credit:
Insure your refund requirements are stringent enough that you aren’t refunding deposits for eventual bad debt accounts. For example, require a minimum of 24 months of good payment history. Each time your customer pays late, restart the waiting period.
Apply the deposit as a credit to the customer’s account rather than sending a refund check. This way you keep the cash as your customer works off the credit and you save your accounting staff the added workload of writing additional checks.
Verify that the customer doesn’t owe you any other bills. This could be utility bills for other accounts in their name or, for municipalities, unpaid taxes or parking tickets. If the customer does owe another bill, apply the deposit to that debt first and only refund the balance.
Finally, if you do refund deposits for good credit accounts, be sure your policy requires that all accounts on the cut-off list maintain a current deposit.
Update your customer service policy
If you make changes in your deposit policies, be sure to update your customer service policy to reflect the changes.
Is it time to review your deposit policies?
If you haven’t reviewed your deposit policies recently, it might be time to do so. Please give me a call at 919-232-2320 or e-mail me at email@example.com to learn how a business review could benefit your utility.
© 2013 Gary Sanders