Recently, there were posts on two listservs inquiring about payment arrangement policies. This made me realize I haven’t written about payment plans in some time, so let’s take a look.
Since I will be including payment plans and payment arrangements as distinct types, I will use repayment options as a generic term for all types, which can be broken down into three categories. Let’s look at each type and what distinguishes them from the others.
Extensions
Extensions are typically used to give customers a few extra days to pay after the due date. Some utilities will waive the late fee when granting an extension, but most use extensions to delay the cut-off process. Some utilities will still assess the cut-off fee without terminating service, while others will waive the fee if the extension is paid on time.
Payment plans
If your customer has a leak or a very high bill for some other reason, you might consider allowing them to repay it over several billing periods. Unfortunately, this doesn’t seem to be a feature many billing software vendors include, so quite a few utilities manage this offline, which is not ideal.
When I worked for a software company, we had a feature called installment services. An installment service was a non-metered service with a fixed number of installments. Each time the service was billed, the number of installments remaining was decremented by one until it reached zero. When no installments remained, the system automatically deactivated the service.
The advantage of using installment services is that the payment plan amount is included on the customer’s monthly bill and, if the bill isn’t paid on time, the customer shows up on the cut-off list.
Payment arrangements
Payment arrangements, unlike payment plans, don’t follow your regular billing schedule. With payment arrangements, you and your customer agree on predetermined dates and amounts to be paid. This can be useful, for example, if you have a customer who is paid weekly and wants to pay off their outstanding balance by making a payment every payday.
Best practices for repayment options
Now that we’ve defined the three types of repayment options, let’s review best practices for using them.
Signed agreement
Many utilities treat extensions less formally than payment plans or payment arrangements, allowing customers to call to request an extension without requiring them to sign an agreement.
However, for both payment plans and payment arrangements, you should have a written agreement signed by your customer and a representative of your utility. Ideally, your attorney should review and approve this agreement. At a minimum, it should outline the payment dates and amounts and the consequences of missing a payment.
Missed payments
If your customer does not pay by the agreed-upon date, the repayment option should be invalidated and the customer subject to immediate disconnection. This should be clearly stated on your agreement form and explained to the customer when they agree to any form of repayment option.
Number of repayment options
It is common practice for utilities to limit the number of repayment options allowed within a specified period of time. For example, most utilities limit the number of extensions a customer can have each calendar year or within a 12-month period. You want to avoid customers requesting an extension every month.
For payment plans and arrangements, the timeframe is often longer. Limiting customers to one payment plan every two years is not uncommon.
Dishonored repayment options
As described above, if your customer misses a payment, the repayment option is no longer valid, and they are subject to immediate disconnection. Failing to honor a repayment option should prevent the customer from applying for another one until they have reestablished a good payment history.
Fees
I’m a strong proponent of charging a fee for services that aren’t provided to all customers. Establishing and monitoring a payment plan or arrangement certainly qualifies, so charging a fee makes sense, although not many utilities do.
Do you need help with repayment options?
If you don’t have a handle on repayment options or know how much of a fee to charge, these are some of the things I can advise you on after completing a business review. Please give me a call at 919-673-4050 or email me at gary@utilityinformationpipeline.com if you would like more information.
© 2026 Gary Sanders