Surprising poll results

If you read the last Utility Information Pipeline, you know it included a poll asking how many days after cut-off you wait before closing accounts that haven’t paid. Based on the results of that poll, it was clear the choices way underestimated how long most utilities waited. As a result, I sent an e-mail last week with a revised poll that increased the maximum choice from 10 days or more to 21 days or more.

Revised poll results

Thank you to those of you who participated in the revised poll. The new poll had more than twice as many responses as the first version. If you missed it, you can still participate in the poll by clicking here.

Here are the results of the revised poll (clicking on the chart will open a larger image in a new window): RevisedPollResults

Still surprised

I’m very surprised that two-thirds of the responses wait three weeks (or more) to finalize an account that is off for non-payment and hasn’t paid. Understandably, some utilities have policies where there always has to be an active account receiving a bill – even if the property is vacant. For these utilities, and those where only property owners are billed, accounts are never closed until the property is sold.

Why wait?

For utilities without such a policy or that bill tenants, why wait so long? By final billing the account, you are able to apply the customer’s deposit and offset any potential bad debt. The sooner you do so, the sooner the customer’s deposit becomes an asset for you, rather than a liability. If you represent one of the utilities responding with 21 days or more, I would be interested in hearing why you wait that long. Have you seen cases where customers show up more than three weeks after being cut off and finally pay? Or is this just something that isn’t a priority? Please feel free to send me an e-mail or comment on this post to explain why you don’t close cut-off accounts sooner.

Is it time to review your cut-off policy?

Has it been a while since you’ve reviewed your cut-off policy? Please give me a call at 919-232-2320 or e-mail me at to learn more about how a business review could assist with reviewing your policies and procedures.

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© 2014 Gary Sanders

How long before you close a cut-off account?

Recently, I was surprised to learn of a customer with accounts that had been cut off for non-payment who were still off for non-payment when the cut-off list for the following month was being prepared.

How long do you wait before closing cut-off accounts?

Have they skipped out?

Experience shows that customers who don’t pay (or try to make arrangements) within the first day or two of being cut-off generally aren’t going to pay and probably are no longer living there. If your customer has skipped out on you, why wait to close the account and apply their deposit?

Waiting a few days to close the account, in case your customer is out of town, makes sense. But certainly a month is much too long to wait.

Code violations

In some localities, a residence without running water is considered uninhabitable and poses a building code violation. If this is the case in your jurisdiction, be sure you follow all local ordinances concerning cut-offs and reporting requirements if it appears someone is still living there after being cut off.

Charge a higher deposit

If they do come back to have their service restored after you’ve closed their account, be sure to charge an adequate security deposit. If you have a variable deposit policy, based on the customer’s credit, they should pay your maximum deposit after being cut off for non-payment.

Quick poll

How many days after cut-off do you wait before closing accounts that haven’t paid? Take this quick poll and see how your utility compares to others.

Is it time to review your cut-off policy?

Has it been a while since you’ve reviewed your cut-off policy? Please give me a call at 919-232-2320 or e-mail me at to learn more about how a business review could assist with reviewing your policies and procedures.

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© 2014 Gary Sanders

Did you catch this in the news?

If you’re not from North Carolina, chances are you may have missed this story in the news last week…

TV investigative report

A recent news segment by a Raleigh television station’s investigative reporter cast a negative light on our local investor owned electric utility.

It seems the electric utility surprised some of their customers with additional security deposits on their monthly bill. Enough customers complained to the TV station to prompt an investigative report on their practices.

Early editions of the story claimed the electric utility periodically reviewed all customer deposits. This was later revised to say the utility only reviews deposits when one of three triggers takes place:

  • Two or more late payments
  • Cut-off notice for non-payment
  • Having a payment returned

However, the customer quoted in the story claims this was not the case.

Protect yourself

If you’ve been a reader of the Utility Information Pipeline for any length of time, you know I believe in maintaining adequate security deposits.

I’ve written in the past about requiring accounts on the cut-off list to pay an additional deposit if their deposit is less than your customer service policy would require of a new account.

What this electric utility requires goes even farther by including multiple late payments and returned payments.

Don’t go overboard

In spite of my strong opinions about maintaining sufficient security deposits, I do think routinely running credit checks for current customers without a triggering event is extreme.

The best indicator of how a customer is going to pay in the future is how they have paid in the past. If you have a good paying existing customer, just because their credit report indicates they missed a few payments to other creditors, this doesn’t mean they should be penalized by your utility.

Do you need to review your deposit policies?

Do you need to take a look at your security deposit policies? Please give me a call at 919-232-2320 or e-mail me at to learn more about how a business review could assist with reviewing your deposit policies and procedures.

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© 2014 Gary Sanders

Do you return deposits for good credit accounts?

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 to learn how a business review could benefit your utility.

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© 2013 Gary Sanders

Does everyone on your cut-off list have a current deposit?

Nearly two years ago, I wrote about adequate security deposits. The last section of that article included some best practices for deposits. Today, let’s take a more in-depth look at one of them.

Reason for security deposits

The purpose of security deposits is to insure you don’t get stuck with unpaid final bills when your customers leave. Not having a security deposit, or having an insufficient one, leaves your utility vulnerable to bad debt and write-offs.

Cut-off list accounts are prime candidates to skip out

There is no guarantee, but common sense tells us that customers on the cut-off list pose a greater credit risk than good paying customers.

Customers who don’t pay until being cut off for non-payment while they have service with you stand a greater chance of not paying their final bill after they move away.

There are a number of reasons you might have customers without a security deposit, or with an insufficient one:

  • Some utilities don’t charge homeowners a deposit
  • The deposit may have been refunded for previous good payment history
  • A credit check at the time of application may have qualified the customer for a lesser deposit
  • The customer may have a longstanding account that began service when you charged a smaller deposit

Best practice for security deposits

A number of utilities have policies requiring all accounts on the cut-off list to pay a deposit if they don’t have one, or to bring an out-of-date deposit up to the current amount. This means a customer on the cut-off list needs to pay their outstanding balance, the cut-off fee and any additional deposit required to bring their deposit up to the current amount.

A policy such as this safeguards the utility against potential losses when the customer closes their account.

First time offenders

Perhaps you might forgive the first time on the cut-off list as an oversight, but certainly repeat offenders should be required to comply with this policy.

If you don’t have a policy requiring accounts on the cut-off list to post a current deposit, I strongly encourage you to adopt one.

When was the last time you reviewed your deposit policies?

If you have questions about your deposit policies or would like assistance in reviewing them, please give me a call at 919-232-2320 or e-mail me at

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© 2013 Gary Sanders

Are you reconciling deposits…?

Over a year ago, I wrote about accounts receivable general ledger reconciliation. This issue examines a similar process – reconciling security deposits.

Security deposits should be reconciled with the general ledger just as your accounts receivable is.

Deposit bank accounts

Many utilities keep security deposits in a separate bank account from the operating cash account. This makes reconciling deposits easier, but doesn’t do away with the need to do so.

If you don’t maintain a separate bank account for deposits, it’s especially important to insure that deposits are reconciled.

Does your billing software interface with your general ledger?

As mentioned in the issue regarding reconciling the general ledger, in today’s market any reputable billing software should be capable of interfacing to a general ledger system. So, if yours isn’t, it might be time to consider new billing software.

General ledger entries for deposits

Even if your software doesn’t interface with the general ledger, you should still enter manual journal entries to complete the process.

A few issues back dealt with improving the process for applying deposits. That issue included a link to a T-account illustration detailing each step in the process, if you missed it.

The deposit reconciliation process

The key to reconciling deposits is to insure that the balance of the customer deposit general ledger account(s) (the control account) agrees with the detail report(s) of deposits from your billing system (the subsidiary ledger).

If you maintain a separate cash account for deposits, the balance of this bank account should also agree with the control account and subsidiary ledger.

This reconciliation should take place regularly, at least monthly.

If I’m not reconciling, how do I get started?

Much like the process of general ledger reconciliation, reconciling deposits involves running the necessary report(s) from your billing system and comparing the totals to the deposit account(s) in the general ledger.

If the amounts agree, your work is done. If they don’t agree, you will need to research the difference, correct the general ledger interface setup, enter an adjusting journal entry and repeat the process tomorrow.

Initially, I recommend repeating this process daily. That way, if you are out of balance, you only have one day’s work to look through to find the difference. Once you are confident that everything is set up correctly and the process is working flawlessly, you can discontinue the daily process and make it part of your month-end routine.

If you have any questions about general ledger interfaces or reconciling with the general ledger, please give me a call at 919-232-2320 or e-mail me at

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© 2013 Gary Sanders