If you’ve been a Utility Information Pipeline reader from the early days, you know I’ve written about days of exposure in one of the earliest issues and revisited itagain three years ago.
I feel like this is an important enough topic to not only write about it again, but to also create a tool so you can calculate your days of exposure. First, let’s review how days of exposure are calculated…
Components of days of exposure
Days of exposure is the total number of days of service a customer ends up owing for if they are cut off for non-payment and never reinstate service. It takes into account six specific time periods:
The sum of these six values results in days of exposure. Dividing days of exposure by the number of days in the billing period (days between meter readings) yields periods of exposure. Multiplying the periods of exposure by the average residential utility bill and then subtracting the security deposit arrives at the potential bad debt write-off (or deposit refund if the security deposit is adequate).
In my experience, taking steps to reduce days of exposure is an exercise that would benefit nearly all utilities, so I’ve developed an online tool to calculate days of exposure.
Calculate your days of exposure
If you’ve attended my Improving Revenue Collections for Utilities presentation at a utility conference, you’ve had the opportunity to complete a days of exposure worksheet. If not, or if you’ve forgotten what yours was, I’ve created an online, interactive days of exposure calculator.
You enter the number of days in each of the six stages, plus your average residential utility bill and residential security deposit, and the tool will calculate your days of exposure and potential bad debt write-off or deposit refund. To calculate your days of exposure, please click here.
Are you surprised by your days of exposure?
Are your days of exposure excessive or are you left with a potential bad debt write-off? If 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 help evaluate how to improve your days of exposure.
© 2018 Gary Sanders
Once again, one of the listservs I subscribe to provided the subject matter for a newsletter. This time it was a town manager asking about policies allowing repayment plans.
A previous Utility Information Pipeline described the distinctions between extensions, installment services, and payment arrangements. This issue will examine some of the requirements many utilities impose on customers requesting a repayment plan.
Limited number of repayment plans
Most utilities impose a limit on the number of repayment plans a customer may have within a given timeframe. For example, only allowing two extensions per calendar year or twelve month period.
The rationale for this is, under normal circumstances, your customers should be able to pay their bill by your established due date. Customers who habitually request additional time to pay are abusing the system.
No history of dishonored payment plans
For most utilities that offer repayment plans, failing to honor a previous payment plan automatically makes a customer ineligible for future payment plans. If your customer failed to live up to their agreement, why allow them to take advantage of you again?
Perhaps the most important part is to require a signed agreement stating the repayment terms and consequences of failing to honor the agreement.
This signed agreement should include promised payment dates and amounts, along with any interest or finance charge to be assessed. As with any legal document, it’s always wise to consult with your attorney when drafting the document.
2017 Utility Fee Survey
The 2017 Utility Fee Survey is still open. If you haven’t already completed it, and would like to participate, please click here to complete the survey. It should take less than five minutes to complete. For an idea of what to expect from the survey, here are the results of the 2015 Utility Fee Survey:
If you have any questions, please feel free to e-mail me at firstname.lastname@example.org or call me at 919-232-2320.
I’m hoping 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 2017 Utility Fee Survey.
North Carolina Rural Water Association presentation
If you or any of your co-workers or board members will be attending the North Carolina Rural Water Association Annual Conference, please be sure to attend my presentation on Improving Revenue Collections for Utilities this Thursday, May 18 at 8:30am.
If you or someone from your utility does attend, please be sure to introduce yourselves!
If you’re considering offering payment plans or are unsure if your delinquent account policies are adequate, please give me a call at 919-232-2320, or email me at email@example.com for more information about how a business review could help you review your entire office operation.
© 2017 Gary Sanders
In one of the listservs I subscribe to, a question was recently asked about what other utilities’ deposit policies are, including deposit amounts. While I think inquiring about other utilities’ policies is worthwhile, comparing the amount of their deposit without knowing their rates and business practices can be futile.
How much is an adequate deposit?
A sufficient deposit should protect your utility against bad debt customers who leave and never pay their final bill. How much that is depends on your average utility bill and your business practices.
Worst case scenario
The worst case scenario for a security deposit is that customer who ends up on the cut-off list and skips out without paying. Your utility is owed the original bill which caused the customer to be on the cut-off list, the next bill (if one has been issued) and any usage since the most recent bill. To illustrate this, let’s look at a hypothetical situation…
Days of exposure
I’ve written before about days of exposure, the total number of days of service you would be owed for by the worst case scenario customer described above. For our hypothetical customer, let’s assume:
- meters are read on the 10th of the month
- bills are mailed the last day of the month
- bills are due on the 25th of the month
- bills are considered delinquent 5 days after the due date
- a final notice is mailed 5 days after the delinquent date
- cut-off occurs 5 days after the final notice is mailed
Here is how that looks in a timeline (clicking on the graphic will open a larger image in a new window):
This adds up to 90 days of exposure (admittedly, this is a bit extreme, but it’s only for illustration purposes):
Assuming you bill each customer monthly, 90 days of exposure equates to three months of bills. You would then have to multiply your average monthly utility bill times three to determine how much an adequate deposit is.
If your deposit is less than this, then you are at risk for write-offs from bad debt customers.
If your deposit policy needs updating or if you would like to explore ways to reduce your days of exposure, 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 help your utility.
Last call for the 2015 Utility Fee Survey
I will be concluding the 2015 Utility Fee Survey soon, so if you haven’t yet participated, please take a few minutes to do so. 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 email@example.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.
© 2015 Gary Sanders
When is your due date?
What date do your customers think is your due date?
If the answer to these two questions isn’t the same, you have a problem.
Conflicting due dates
In a sales presentation with a prospect last week, I asked, “when is your due date?” The two billing clerks contradicted each other – one stating their due date is the tenth of the month, the other insisting it is the first of the month.
The reason the second billing clerk insisted it is the first is because this is the due date printed on the bills. However, they don’t consider the bills to be late until the tenth, which explains the first clerk’s answer.
I can assure you, if you publish one due date but don’t charge a late fee until a later date, your customers will quickly catch on and, in their minds, they consider the “due date” to be the later date. Sure, your very best customers will pay their bills by the published due date, but as far as all the rest are concerned, the due date is the very last day they can pay without being penalized.
What purpose is served by offering a grace period between the due date and delinquent date? Absolutely none. Once your customers realize you won’t charge a late fee until the second date, you might as well publish the delinquent date as your due date.
If you offer a grace period, abolishing it is one of the easiest ways to reduce your days of exposure.
This same prospect, in addition to offering a grace period of 10 days, doesn’t charge penalty until two days after the delinquent date. They do this to allow payments postmarked by the tenth to be processed without being charged a late fee.
Verifying postmarks, or delaying charging late fees to accommodate them, is an antiquated process that few utilities take the time to do. Unless you are governed by state law or local ordinance that requires you to check postmarks, there is no reason to do so.
Mailing a check is no longer the only way to pay a utility bill. With options such as bank drafts, online bill pay and IVR phone payments, your customers have no excuse for not paying by the due date.
Is your office still following outdated procedures?
Is your office still following practices that have outlived their usefulness? Could your office benefit from operating more efficiently? If the answer to either question is “yes”, or if you’re not sure, 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 benefit your utility.
© 2014 Gary Sanders
Has your utility grown to the point where you’re wondering if you should move from billing all your customers at one time to cycle billing?
Traditionally, utilities have made the move to cycle billing for one of three reasons. Let’s examine each of these reasons…
More balanced workload
Perhaps the most common reason for moving to cycle billing is an attempt to balance the office and staff workload.
Does your office get slammed with customers coming in to pay on the due date and cut-off date? If you’ve done all you can to reduce walk-in payments and the number of customers in your lobby on the due date is more than your office can manage, it’s probably time to consider cycle billing.
Billing twice a month, as compared to once a month, means half the volume on each due date and half the cut-offs on cut-off day. This is extremely helpful for smaller utilities with limited field staff to perform cut-offs and reconnects.
Length of time it takes to read meters
Another frequent reason for moving to cycle billing is the number of days it takes to read meters. In an attempt to minimize the days of exposure, many utilities have realized that billing more frequently than once a month makes sense.
However, as automated meter reading systems become increasingly popular, and more meters can be read in less time, this makes a less compelling case for cycle billing.
Improved cash flow
The third reason for moving to cycle billing is improved cash flow. The more frequently you bill, the more spread out your influx of cash will be.
This is especially true for utilities that bill less frequently than monthly. For example, utilities that bill bi-monthly often bill half their customers one month and the other half the next month. This provides a more steady cash flow from month to month.
Is it time to consider cycle billing?
Does one of the above scenarios describe your office? If it does, and you aren’t sure if cycle billing makes sense or not, please give me a call at 919-232-2320 or e-mail me at email@example.com to learn how a business review could assist you in evaluating the pros and cons of cycle billing.
© 2013 Gary Sanders
Do you offer your customers choices in how they can pay their bill? According to the 2012 Fiserv Billing Household Survey, 76% of American consumers use more than one method to pay their bills each month.
The infographic below is from the survey and highlights several key trends. Clicking on the infographic will open a larger version from the Fiserv website.
Let’s examine some of the key points illustrated by the infographic.
Customers use multiple payment methods
As mentioned above, 76% of consumers use more than one method to pay monthly bills. This could be due to personal preference or, more likely, to the unavailability of being able to pay some bills online.
More surprisingly, 20% vary how they pay bills each month, based primarily on availability of funds and due dates.
Online payments outpace check payments
For the last 11 years, check payments have steadily declined while online payments have more than quadrupled. 50% of bills are now paid online, split equally between using online banking and paying at the biller’s website.
As this trend continues, you can expect to see more payments being made at your website (if you offer online bill pay) and through online banking. If you aren’t receiving online banking checks electronically, your cash flow will suffer as more and more customers migrate from writing checks to paying bills through online banking.
Want more visitors to your website?
The number one reason given by consumers for visiting a biller’s website is to pay a bill online. If you’re not offering online bill pay, you’re missing out on this website traffic.
When was the last time you reviewed your payment options?
If you have questions about your existing payment options or would like assistance in exploring additional payment methods, please give me a call at 919-232-2320 or e-mail me at firstname.lastname@example.org.
© 2013 Gary Sanders