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have policies requiring all accounts on the cut-off list to pay a deposit if they don’t have one, or to bring an out-of-date deposit up to the current amount.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.