Utilities expert Gary Sanders has partnered together with MuniBilling to help give readers an in-depth look into the world of Utility Billing Systems.
For today's Ask The Expert blog, we'll focus on how leveraging application fees can make a massive impact to your organization. Gary Sanders gives feedback on what he's learned and observed in the field.
To start, what is an application fee and how does that differ from something like a security deposit?
Think of a a security deposit more like insurance. It's a fee that becomes refundable after your customer closes their account, or if they don’t pay their final bill. That is a way that you can ensure that there are funds that have been applied to cover costs of those instances where a customer may not pay their final bill
An application fee, on the other hand, cover those business costs before they happen. Setting customers up takes your team time and energy. It costs your utility money. Application fees help to cover those costs as they're happening, not just in the event of something happening.
Why should Utilities be leveraging those application fees and what are the downsides to not implementing them?
Following the concept of user fees, a fee is charged only to customers who incur that fee and should recoup the cost of providing the service. For example, returned check fees are only charged to customers who bounce checks and late fees are only assessed to customers who don’t pay on time.
Application fees, on the other hand, are charged to everyone who sets up service, which will eventually be your entire customer base.
One huge advantage to charging an application fee is that it provides another source of revenue to your organization, other than increasing rates. It also helps to again cover those costs when those new customers begin their service, which is often when there is the most platform setup need.
What factors should utilities consider to calculate how much to charge in the application fee?
Following up with the previous question, a fee should fully recover the cost of providing the service for which the fee applies. In this case, an application fee should cover the cost of activating a new customer.
Some of the costs involved in establishing a new account include:
- Office staff salary and benefits to enter the application in the system
- Cost of a credit check, if you perform one
- Field staff salary and benefits to drive to the location and take the initial meter reading (unless you have an AMI system)
- Gas and maintenance expenses for the vehicle used by the field staff
- Updating the turn-on service order and activating the account for billing
It is entirely appropriate to charge an application or service initiation fee to recover these costs.
For information about what other utilities charge as an application fee, please see the results of the 2023 Utility Fee Survey.
What are some tips to most transparently communicate the application fees to customers?
Any place where you inform your customers about initiating service with your utility should include information about the application fee.
This includes your website, any posters in your office, and materials you provide to realtors and landlords.
I'm not a communications expert, but I have spoken about some communication tips before, which is a great place to start.
The key is to always be clear in explaining why you charge fees and to provide your team member with a solid understanding of each fee that your organization charges.
Operational Analysis
Gary's 40+ years of experience in the industry has granted him valuable knowledge for any billing entity. With the wealth of his knowledge, you can request an Operational Analysis for your organization from him!
You may be wondering, what exactly is an Operational Analysis? Well, it essentially is when Gary looks through ALL of your systems, and interviews your team, to figure out how best you can improve your billing operations.
Here are a few of your organization's systems that Gary will assess:
- Billing System
- Accounting System
- Metering System
- Service Delivery System
The end goal of this analysis is to figure out how to best save your organization time and money. This could also mean suggesting another company's platform if it's the better fit for YOU.
Gary has hosted his own blog for the past ten years. Some of his more notable credentials are that he has designed, built, implemented, and supported both ERPs and Utility Billing Systems. Thankfully, he's only a hop, skip, and jump away.
