When I talk to potential clients about how they pay and process their utility bills, they often say they pay their utility bills the same way they pay their other vendor bills. That’s a big mistake that can really cost you! Here’s why:
1. Your utility provider is usually the only show in town.
Except in rare circumstances, there is only one utility company to deliver the services you need. That company has the wires, poles, meters, transformers and all the equipment necessary to get electricity or gas to your property. If you are in a deregulated state, you may have other choices for energy supply, but you still have to purchase distribution services from your local utility company.
When choosing a vendor for office supplies or raw materials, you probably have several options. These vendors know you can shop elsewhere, and they want your business. If you pay your bill late, they may waive the late fee if asked. If you are a big customer, you might leverage your size to negotiate longer payment terms such as Net 60 instead of Net 30.
Utility companies are different. Because you don’t have a choice, they have the upper hand. They will assess late fees and generally will not forgive them, no matter how big a customer you are. The late payment fee, typically a percentage of your unpaid bill, can be sizeable.
2. Utility providers carry a big hammer, and they are not afraid to use it.
The late payment fee is not the worst that can happen. If the utility company doesn’t receive its money within the required time period, its next step is to shut off your service. There are laws to protect consumers from shut-offs, but there are no such laws for businesses. The provider will stop your service and pull out your meter. To get your service back, you will not only have to pay a re-connection fee but also start out as a new customer. This may mean you’ll need to put down a deposit worth one or two months of estimated usage. For an energy-intensive organization, this can be enough money to make or break your business: hundreds of thousands or even millions of dollars, just for the deposit.
If you managed to avoid or decrease the amount of your deposit when you established initial service, you still need to be wary. Some utility providers monitor the creditworthiness of their business customers. If there is a negative change in your credit rating, the utility may suddenly demand a deposit or increase the size of your existing deposit. This can be devastating to some businesses, and we have had clients come to us for assistance in their negotiations.
3. Utility invoices require special handling because late fees can really add up.
In many organizations, utility invoices get delivered to the accounts payable department. Accounts payable staff sends the invoice to the relevant department for approval. Once signed, the bill is sent back to accounts payable. Before the check is cut and put into the mail, it’s probably already late.
Many companies don’t realize they are paying late fees every month. The bills go from desk to desk as part of the usual accounts-payable process, and the total amount—including the late fees—is captured as a single utility expense in the general ledger files and financial statement. The true cost gets hidden within your own accounting system!
4. Utility companies do not grant extended payment terms, and most give you less than 30 days to pay.
The billing date is the same as the meter reading date. The clock is ticking before the bills even leave the utility’s mailroom. During a study we did for one client, we found the average time from receipt of the utility bill to due date was 12 days. The company had 700 utility accounts, so you can imagine the potential cost of late fees. For some of our clients, the elimination of late fees completely pays the cost of our Invoice Processing and Payment program.
If you pay by check, you need to add time to cut and mail the check. The check is not posted to your account until someone at the utility company opens the mail and deposits the check. If you use one utility company to provide all your services, you can save time by setting up the account to pay it electronically. However, if you have lots of locations spread across the country, it takes time to set up and test multiple electronic payments. This is why some companies think it’s easier to pay by check.
Some utility vendors will not accept electronic payments; in our experience, those vendors rack up most of the late fees. They are usually small providers, unable to process your check quickly. We have identified certain utility companies that are constant offenders, and it does make you wonder if the problem is deliberate. When most utility companies are charging 1.5% per month, it can add up fast. We have seen late payment fees as high as 10%.
The Outsourcing Solution
Many companies find it more efficient to outsource the payment of utility bills to an expert such as Cost Control Associates. Multisite organizations come to us for invoice processing and payment, because it’s cheaper, faster and reaps valuable utility usage data. The client makes its electronic payments to us, and we take care of the rest.
Companies of any size can take advantage of our services. We have one energy-intensive client with just 12 locations, but the average utility bill per location is $300,000 a month. The potential for late fees is huge. In addition, we capture every line of data from each invoice. The client can log into a web portal to look at that data, run reports and better manage energy costs and usage from an operational standpoint.
3 More Helpful Tips
If you choose to go it alone and make your utility payments in house, at the very least, do this:
- Handle your utility bills immediately. If you pay by check, pay the bill as soon as you get it. Your other bills can wait.
- Pay your utility bills from one central location. Do not allow your individual locations to pay and process their utility bills. You won’t have a clear idea of your energy usage, and you will pay significant late fees.
- Examine what you are currently paying in late fees. If you haven’t looked before, prepare to be surprised.
Keith Laake founded Cost Control Associates, Inc. in 1991 and has been responsible for strategic planning, marketing and sales, and overall management of the firm. He currently focuses on business development. Keith received his BBA from the University of Wisconsin and is a certified public accountant. Learn more.