A Novel Alternative to Security Deposits
One of the great things about my job is getting to meet people from utilities across the country and learning how they do things. One such experience happened last week while speaking at a conference and I heard a new idea from one of the attendees. I found it intriguing enough to share here…
Who doesn’t want more customers on bank draft?
During the discussion about security deposits in my presentation, a participant offered that his utility will waive the security deposit for any new customer that agrees to sign up for bank draft.
As I’ve discussed here before, bank drafts are the single most efficient way to process payments. Because of this policy, the utility this gentleman works for has over 60% of their customers on bank draft. In my experience, 30-40% of a utility’s customers signed up for bank draft is impressive, but 60% is unheard of!
Significantly increasing the number of customers paying by bank draft can only help to make your utility operate more efficiently.
What are the risks involved?
Obviously, the biggest risk is the exposure of the utility if the customer doesn’t have sufficient funds in the bank to cover the bank draft. This particular utility allows one returned bank draft without penalty (assuming the customer promptly pays to cover the returned draft). After the second returned draft, the customer is required to pay a deposit.
Of course, you have all the normal recourse in the event of a bounced bank draft, including a returned bank draft fee and disconnecting service if the customer does not make restitution in a timely fashion.
Is it worth it to your utility…?
The big question you must ask yourself is – “Is it worth the risk of a few more write-offs to double (or triple) the number of customers paying by bank draft?” As with any policy, each utility must decide if implementing another utility’s policy makes sense for them.
For the utility I’ve cited here, obviously they have decided the benefits outweigh the risks. The answer boils down to how much it costs your utility to process payments.