Every municipal utility manager knows the frustration: thousands or even millions of dollars in unpaid water, sewer, and electric bills sitting on the books, some accounts stretching back years. While utilities focus on keeping the lights on and water flowing, old receivables quietly accumulate, transforming from manageable collection issues into financial sinkholes that drain resources and complicate operations.

The reality is stark. Many municipal utilities are carrying uncollected debt that represents 5-10% or more of their annual revenue, with some individual accounts dating back a decade or longer.

1. Waiting Too Long to Take Action on Delinquent Accounts

The single biggest mistake municipal utilities make is delaying collection efforts. Unlike private utilities that move quickly on delinquent accounts, many municipal utilities allow balances to age for months or even years before taking meaningful action beyond mailing notices.

Why this happens:

• Understaffed customer service departments overwhelmed with daily operations
• Policies that require excessive warning periods before disconnection
• Fear of negative publicity from collection actions
• Lack of clear escalation procedures and timelines

The cost of delay:

• Accounts over 90 days past due have dramatically lower collection rates than those under 30 days
• Customers who owe $500 are much more likely to pay than those who’ve accumulated $2,000 in arrears
• The longer debt ages, the more likely customers have moved, making them nearly impossible to locate
• Staff time spent on old accounts yields diminishing returns compared to early intervention
• Lost opportunity cost—every dollar not collected is a dollar that must be made up through higher rates for paying customers

Best practices:

• Implement a strict, consistent escalation timeline (e.g., 15 days past due: phone call; 30 days: final notice; 45 days: service disconnection)
• Automate early-stage collection activities (reminder calls, texts, emails) to reduce staff burden
• Track collection rates by aging category to demonstrate the ROI of early action
• Create hardship programs separately from collection processes so legitimate need doesn’t derail enforcement

2. No Strategy for Collecting Debt After Service Disconnection or Customer Move-Out

Once a customer’s service is disconnected or they move out of the service area, many municipal utilities essentially write off the debt mentally, if not officially. Collection efforts become sporadic or cease entirely, and these accounts pile up year after year.

Why this is a critical error:

• Post-disconnection debt often represents the largest balances (customers who’ve accumulated months of arrears)
• These customers have no incentive to pay since they’re no longer receiving service
• The debt becomes unsecured once the customer is no longer in the service area
• Without active collection efforts, recovery rates approach zero
• The accumulated old debt distorts financial statements and complicates rate-setting

What’s missing:

• Partnership with collection agencies for accounts that can’t be resolved internally
• Use of credit bureau reporting to incentivize payment (most people care about their credit scores)
• Systematic skip tracing to locate customers who’ve moved
• Payment plan options that remain available even after disconnection
• Coordination with other municipal departments (the customer might be applying for permits, licenses, or other services)
• Clear write-off policies and timelines so old debt doesn’t linger indefinitely

Recommended approach:

• At 90 days post-disconnection or move-out, send a final demand letter offering a payment plan
• At 120 days, refer accounts to a collection agency
• Report delinquent accounts to credit bureaus after appropriate notice
• Use skip tracing services to locate customers who’ve moved
• Establish business rules: deny new service applications from anyone with outstanding debt
• Set a statute of limitations timeline (typically 3-7 years) after which uncollectible debt is formally written off
• Track recovery rates on post-disconnection debt to refine your strategy

3. Poor Data Management and Lack of Performance Metrics

You can’t manage what you don’t measure, yet many municipal utilities operate their collections function without meaningful metrics, reporting, or data analysis. They don’t know their true collection rates, which strategies work best, or where their processes are breaking down.

Data problems we see repeatedly:

• No aging reports showing breakdown of receivables by 30/60/90/120+ days
• Inability to segment debt by customer type (residential vs. commercial), account status (active vs. inactive), or geographic area
• No tracking of collection activity effectiveness (what percentage of disconnection notices result in payment?)
• Missing data on why accounts become delinquent (seasonal employment, medical issues, genuine hardship vs. simple non-payment)
• No benchmark comparisons to other utilities or industry standards
• Reports generated monthly but never analyzed or acted upon

Consequences of flying blind:

• Inability to justify staffing or budget requests for collection activities
• No way to demonstrate ROI on collection strategies to city leadership
• Can’t identify which customer segments or neighborhoods have the highest delinquency rates
• Missing opportunities to address root causes (e.g., if delinquency spikes after rate increases, might need better communication or payment plans)
• Staff working hard but without data-driven priorities about where to focus efforts

Essential metrics to track:

• Total receivables by aging category: Current, 1-30 days, 31-60 days, 61-90 days, 90+ days
• Collection rate: Percentage of billed revenue collected within 30, 60, 90 days
• Days Sales Outstanding (DSO): Average number of days to collect payment
• Delinquency rate: Percentage of active accounts that are past due
• Recovery rate by strategy: How much debt is recovered through payment plans vs. liens vs. collection agencies vs. write-offs
• Bad debt expense as percentage of revenue: Industry benchmark is typically 1-2% for well-managed utilities
• Cost to collect: Staff time and external costs per dollar recovered
• Disconnection effectiveness: What percentage of disconnection notices result in payment before shutoff?

Building a data-driven collections function:

• Generate and review aging reports monthly at minimum, weekly for active collection efforts
• Establish performance targets for each metric and track progress
• Use data to prioritize collection activities (focus on accounts most likely to pay with appropriate intervention)
• Present regular reports to city management showing collection performance and trends
• Benchmark against comparable utilities to identify improvement opportunities
• Invest in billing system upgrades if current system can’t produce needed reports

Moving Forward: Building a Collections Culture

The common thread through all three mistakes is treating collections as an afterthought rather than a core business function. In private utilities, collections is understood as essential to financial sustainability. Municipal utilities need to adopt the same mindset while respecting the unique challenges of serving a public mission.

Creating sustainable change:

• Get political buy-in: Present data to city council showing how uncollected debt forces higher rates for paying customers—this is a fairness issue
• Invest in technology: Partner with a trusted collections agency
• Staff appropriately: Collections shouldn’t be someone’s “other duty as assigned”—it requires dedicated focus and expertise
• Balance enforcement with assistance: Robust collection policies work best when paired with genuine hardship programs for those who truly need help
• Be consistent: The biggest driver of payment behavior is certainty—customers pay when they know consequences are real and will be enforced
• Measure and adjust: Use data to continuously refine your approach and demonstrate value to stakeholders

The debt sitting on your books right now represents real money that could fund infrastructure improvements, avoid rate increases, or strengthen your utility’s financial position. Every dollar you collect is a dollar that doesn’t have to be subsidized by your paying customers.

Stop letting old debt accumulate. Start treating collections as the critical business function it is. Your paying customers—and your utility’s long-term financial health—will thank you.