I recently joined another listserv and one of the recent posts inquired about security deposits, including how much other utilities charged.
Periodically, I see utilities asking how much other utilities charge as a security deposit. While this may provide an indicator of how your deposit compares to another utility, it’s not really a worthwhile exercise.
Why is that, you ask? Well, it’s because your security deposit should be a function of two things – your Days of Exposure and your rates, both of which may be very different from another utility.
Impact of Days of Exposure
Days of Exposure represents the total days of service for a customer who is disconnected for non-payment – from the previous reading date of the bill they are cut off for until the day their service is terminated. How your utility’s Days of Exposure compares to that of another utility will impact how your deposit should compare to theirs, as well.
Impact of your rates
The second, and equally important, factor in determining your security deposit is your rates.
Once you have calculated your Days of Exposure, divide that by the number of days between meter readings to determine how many bills a customer would have outstanding by the time they are cut off. Multiply this by your average residential bill amount and compare the result to your security deposit. If the result is more than your security deposit, you are at risk for bad debt write-offs.
Compare your security deposit
If you’re interested in determining if your security deposit is adequate, please try the Days of Exposure calculator on my website. It will calculate your Days of Exposure and determine if your security deposit is sufficient to avoid potential write-offs.
Complete the 2023 Utility Fee Survey
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Is your security deposit adequate?
If you’re unsure if your current security deposit is adequate, please give me a call at 919-673-4050 or email me at firstname.lastname@example.org for more information about how a business review could help you determine if it is.
© 2023 Gary Sanders