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Six Best Practices Utilities Can Employ to Improve Collections Performance

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Tom Hulsebosch's picture
Leader, Energy & Utilities and Sustainability practices, West Monroe Partners

Tom Hulsebosch is a senior managing director, leader of the Energy & Utilities practice and Dallas office, and a member of West Monroe’s Executive Team and Board of Directors. A 30-year...

  • Member since 2008
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  • Sep 4, 2014

Utilities face increasing pressure from stakeholders and communities to improve their financial performance and profitability by minimizing write-offs for uncollectible accounts. West Monroe Partners recently benchmarked clients to identify best practices used to improve utility collections performance. While collections performance is highly measurable, visible, and actionable, it is also influenced dramatically by local ordinances and challenges that are unique to each utility. Our benchmarking effort identified six best practices that utilities can employ to improve their collections performance. Some utilities are hesitant to change collections practices, fearing a corresponding drop in customer satisfaction. West Monroe's benchmarking found the opposite to be true -- generally, utilities that implement and strictly enforce collections policies have higher customer satisfaction.

Of survey participants, investor-owned electric utilities generally have the best revenue collections performance, followed by combined municipal operations (e.g., electric and water).  Municipal water utilities demonstrated the most need for collections improvement.  This is likely due to the prevalence of automatic meter reading/advanced metering infrastructure (AMR/AMI) in electric utilities, infrastructure that supports remote-disconnect, and clear policies mandated by regulatory commissions for electric utilities. Water utilities, on the other hand, have been slower to adopt AMR/AMI solutions, do not share nationwide or even regional water resource mandates, and are often more subject to local and political influences. Water infrastructure in the United States is dated and expensive to repair, and sometimes impedes water utilities from promptly terminating service. These factors, combined with often highly political delinquency policies, make it difficult for water utilities to consistently enforce policies for treating past-due customers. 

Multiple utilities who participated in this survey were concerned about collections policy enforcement negatively impacting customer service. Surprisingly, we found evidence that the opposite may be true – tightening enforcement of collections policy may actually improve customer satisfaction at utilities. This was evident at multiple utilities, one with high collections performance and another one with low performance. In both instances, customer service satisfaction was higher at the utility that strictly enforced their collections policy and had lower bad debt write-offs than their competitor. Based on West Monroe’s experience, utilities that consistently enforce their collections policy spend less time interacting with delinquent customers, leaving more time to provide high-quality customer service.  Staff availability to service paying customers could be the key source of increased customer satisfaction. Additional benefits of a consistently enforced collection policy include higher revenue and lower customer operations costs, both of which help keep water rate increases in check. Throughout our benchmarking, the following best practices were identified to help utilities minimize bad debt write-offs and increase customer satisfaction.

Best Practice #1 – Collect and Maintain Good Customer Data

To enhance collections performance, you first need to know your customers and debtors. At account setup, utilities should positively identify customers by requiring a social security number or driver’s license number. With this information, utilities can review past payment behavior (if available), or perform soft credit checks. By positively identifying customers, utilities can verify any outstanding balances on other accounts associated with the customer, and require payment in full, prior to establishing new service. Some utilities recognize and reward employees for finding old debt write-offs for customers that are now attempting to initiate service with a new account. Metropolitan areas with high populations of renters face additional challenges in verifying customer information. Multiple utilities elaborated on the difficulties of positively verifying tenants, especially if tenants attempt to transfer account ownership to a different resident of the property (e.g., roommate, sibling, or parent). To mitigate this risk, some utilities assume the administrative burden of verifying leases to confirm eligibility, while others leverage local ordinances to pass the final bill responsibility to the property owner.

Collecting detailed customer data at account set-up is only one half of the equation – keeping this ever-changing customer data synchronized between multiple systems is an entirely separate challenge. To maintain enterprise data, utilities should develop and deploy a master data management (MDM) strategy. When widely understood and used across the organization, data management strategies ensure data can be used for meaningful reporting and analytics. The foundation of MDM is identifying how data synchronizes between systems and defining flows for data updates between Customer Information Systems (CIS), Geographic Information Systems (GIS), Workforce Management Systems (WMS), and the Customer Relationship Management (CRM) Systems. To keep customer data in sync, customer service employees should document all customer interactions in a synchronized system. This includes emails, phone calls, prior service requests, and associated service requests. Regardless of where the data is stored, this practice enables all utility employees access to updated customer information. When utilities have high quality data, they are better able to identify trends in customer behavior and utility performance.

Best Practice #2 – Practice Premises-Based Billing

It is difficult to verify tenant demographics, and tenants’ transient nature increases utilities’ risk of not collecting payment. To address this risk, some utilities capture both tenant and property owner data, and will bill property owners or landlords in the event of tenant non-payment, especially in high tenant populations (e.g., college towns). Although effective in some situations, there are legal implications of burdening property owners with tenants’ debt. Utilities that employ premises-based billing, however, are most effective in minimizing non-payment. Premises-based billing holds the premises owner accountable, regardless of who occupies the property, and has a handful of benefits:

 - Service disruptions, when utilities are turned off between tenants, are eliminated;

 - Property owners are not unexpectedly left paying tenants’ utility bills;

 -  Utility costs can be factored into rent and lease arrangements, resulting in fewer individual bill payments for tenants. 

For utilities, premises-based billing arrangements (1) minimize the administrative cost of establishing new service or move ins/move outs for tenants, and (2) enhance probability of bill payments, as property owner data is more easily obtained than tenant data. If utilities must bill tenants, they should maintain owner information as a secondary record for the premises’ account. This ensures bills can default to the owner if the tenant vacates the property. 

Best Practice #3 - Employ Customized, Risk-Based Processes

Aggressively treating all past-due accounts in a similar fashion is expensive, unrealistic, and could impact public-perception of utilities. To combat this, and to maximize effectiveness of treatment, utilities should use analytics to segment customers into low, medium, and high-risk pools. When high-risk customers enter the first stages of delinquency with a past-due bill, they should immediately receive treatment. Treatment options include outbound phone calls, bill notices and inserts, referral to social support agencies, separate delinquency letters, dunning letters, termination of service, and handoff of account to collections agencies. Shortening the timeline for collections activities, including termination of service, prevent customers from incurring unpayable, high-dollar bills. Conversely, loyal, low-risk customers generally deserve the benefit of the doubt if they miss a payment. For customers with proven history of on-time and in-full bill payment, utilities can create extended delinquency timelines and offer more lenient policies, such as beginning delinquency steps with friendly reminder letters and an outbound reminder phone call. Outside of the utility industry, some Fortune 500 companies such as Discover have similar leniency in polices, including one-time forgiveness for late payments. Customized treatment for customers of different risk levels enhances customer service, reduces public perception risks, and reduces collections costs for utilities.

A few utilities surveyed discussed a large focus on payment arrangements. Creating payment arrangements with customers is an easy way for agents to get customers off the phone, while preventing termination of service. Unfortunately, utilities shared that customers who have already incurred a balance high enough to warrant a payment arrangement, typically are unable to fulfill the obligation of both their regular bill and their payment arrangement. Utilities can minimize payment arrangements by treating past-due accounts in their infancy, rather than waiting for accounts to age and incur additional usage, fees, and penalties. This is better for customers, and reduces the administrative burden utilities face in creating payment arrangements that are rarely honored by customers.

Best Practice #4 – Make it Easy to Pay

By sending timely bills, with actual meter reads, and presenting bill information in an engaging and clear layout, utilities can improve on-time payment. When necessary, estimated bills should leverage customer history, seasonal usage patterns, and weather trends to mimic the actual amount due as closely as possible. Customers who understand and trust their bill are more likely to pay on time, and are less likely to contact the utility to question or contest their bill.

Today’s customers expect a variety of payment channels, and utilities compete with exceptional payment experiences provided by companies like Amazon, Netflix, and Verizon. Third party merchant processors (Authorize.Net, PayPal, etc.), fortunately, are able to provide utilities with industry-leading payment channels at affordable price points, and will assume the burden and risk of storing credit card data. Few utilities provide customers with recurring payment channels – channels that automatically charge customers every month. These channels, such as recurring, automatic credit card/debit card, or automatic ACH, are significantly lower-cost than all live-agent supported payments (e.g., in-person payment centers, payment by live phone agent). Utilities can incentivize low-risk and low-cost channels by waiving deposits for new customers who enroll and through marketing campaigns.

Best Practice #5 – Leverage State Laws and Local Ordinances

Multiple utilities surveyed cited issues of political pressure when attempting to perform collections activities. Survey results indicate that utilities which have a published delinquency policy, including fees, timelines, and cutoff practices, face the least political pressure. Publishing this information, and consistently enforcing the policy, prevents utilities from accusations of biased treatment, and prevents customers from gaming collections policies.

A handful of utilities have been extraordinarily successful in reducing bad-debt write-offs by leveraging municipal code to ensure payment. These utilities, all municipally owned, work to gain support of elected officials. When utilities have this support, they can align collections policies to the best interest of the municipality (or state) and the utility. These aligned collections policies include requiring payment-in-full for the premises before property deeds can be transferred, collecting bad-debt from state tax refunds, and billing property owners for tenants’ past-due balances.

Best Practice #6 – Make Utilities Accessible

While our firm typically works with utilities to improve business performance and enhance customer experience, we also strongly believe that utilities provide a commodity service that everyone deserves access to. Fortunately, this is something utilities can incorporate into their collections strategy.  Partnering with local charities who administer Low Income Home Energy/Water Assistance Program (LIHEAP) funds is a financially sound decision for utilities, and enables customers facing financial hardship to receive assistance with utility bills. Some utilities are even able to directly connect to federally funded programs through local administrative agencies and connected call center lines.

To develop partnerships with social agencies, at minimum, utilities should participate in assistance fairs, and designate a team of representatives for social agencies to contact with a direct line. Through active campaigns and outreach strategy, utilities and social agencies can connect customers to resources providing financial assistance. Some utilities have seen great success in developing third party portals for charitable organizations to verify customer bills and payment history, or establish assistance funds that encourage customers to donate on their regular bill remittance.  Success in this area is less a function of creating new programs, and more a function of connecting customers to the right resources.


Results of our benchmarking effort made it clear that collections performance continues to be a strategic, industry-wide issue for electric, gas, and water utilities. To improve collections performances, utilities should:

- Collect and maintain good customer data;

 - Practice premises-based billing;

 - Employ customized, risk-based processes;

 - Make it easy to pay;

 -  Leverage state laws and local ordinances; and

 -  Make utilities accessible. 

To successfully execute these best practices, utilities should empower a collections strategist who can coordinate activities between the call center, billing, collections agents, field operations, IT, finance, accounting, and regulatory agencies (boards, commissions, and elected officials). Successful collections practices continually evolve and utilities should evolve with them.  Developing formal continuous improvement processes that drive innovation can enhance collections performance through:

 -  Improved business operations;

 -   Increased technology adoption (e.g., AMR/AMI, customer analytics);

 -  Modified and leveraged municipal code/commission rules; and

 -   Enhanced training of utility employees and customers.

Improving collections performance has a significant bottom line impact for utilities – even one-half a percentage reduction in bad debt write-offs generates significant financial return – and it improves utility reputations in the communities they serve. West Monroe’s Collections Maturity Model is a tool to help utilities benchmark their performance against six industry best practices, and can foster dialogue on collections strategy, performance, and shortcomings.  As utilities seek to improve customer service and satisfaction, it makes sense to look at all customer touch points, including collections processes.  For many utilities, a holistic view of the customer experience they provide leads to better customer satisfaction, increased standing among their peers, and improved financial results. 

West Monroe Partners extends our deepest thanks to the utilities who participated in this benchmarking effort. Survey participants include investor-owned utilities, municipal utilities, and cooperatives. Due to the highly sensitive nature of collections strategies and performance, individual survey participants and their specific results are anonymous. There were 3 smaller sized participants (0-100K customers), 7 medium size participants (100-1M customers), and 2 larger participants (1M+ customers). Annual write-offs ranged from 0.25% of operating revenue to 3.0%.

Our team has experience developing and executing collections strategies – from customer analytics and data strategy to technology design, development, and implementation, West Monroe Partners can help utilities improve financial performance, while improving customer service levels and public perception. Our team has deep industry experience defining technical and functional requirements, redesigning business processes, and strengthening business strategy.

Collections Maturity Model





Collect and Maintain Good Customer Data

Utility does not have a master data management (MDM) strategy, and struggles to create and maintain timely and accurate customer information

Utility has an MDM strategy, but it is not strategically implemented throughout the organization

Utility has deployed an MDM strategy across the organization and it is widely understood as a strategic asset for data owners and stewards

Practice Premise-Based Billing

Utility employs tenant-based billing (rather than premises/owner), and has limited ability to verify tenant data (i.e., lease verification)

Utility bills premises  when possible, and has strategies to verify tenant data

Utility practices premises-based billing and has strategies to capture property owner data

Employ Customized, Risk-Based Processes

Utility collection efforts are broadly performed on past-due accounts; no risk assessment is performed

Utility collection efforts are the same for all customer bases, but new-customer deposits are risk-based

Utility collection efforts are focused on high-risk customers

Make it Easy to Pay

Utility has a variety of payment channels, but does not offer recurring, automatic payments

Utility offers recurring and automatic payment channels, but does not actively market nor reward these options

Utility provides and incentivizes automatic and recurring payment channels

Leverage State Laws and Local Ordinances

Utility faces significant political pressure due to ad hoc and non-standardized collections policies, and occasionally caters to demands made by local officials and media

Utility has a defined and published collections policy that is widely understood, standardized, enforced,  and reduces political pressure


Utility has a defined collections policy and has leveraged municipal code to ensure payment (e.g., seizing tax refunds, requiring payment before property title transfer)

Make Utilities Accessible

Utility does not actively engage with social agencies who assist customers facing hardship (e.g., United Way, Salvation Army)

Utility provides discounts to select customers facing hardship and/or has some relationship with social agencies


Utility partners with social agencies and/or contributes to a hardship fund, and information is marketed to customers in need


 Co-author Tricia Anklan

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Thank Tom for the Post!
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