October 27, 2020
5 Utility Billing Mistakes That Are Hurting Your Cost Recovery
High utility cost recovery is essential to a property owner’s bottom line. But even a simple mistake in your billing system can cost thousands. Here are the five most common utility billing errors owners make and how to fix them.
Using the Wrong Submeter Multiplier
Pulse submeters work by sending out pulses that represent the amount of utility consumed.
To find out the true consumption for a unit, you need to get the raw read from the meter. Then you multiply by the pulse multipliers to get true gallon amounts.
This is where things get tricky. The pulse multiplier varies between submeters. A meter could have a pulse of one, meaning there’s one pulse for every one gallon. But you could also have one pulse for every 10 or 100 gallons.
Identifying your submeter multiplier is a straightforward process. But there’s a huge margin for error if you make a mistake. A single missing zero could mean under- or over-charging tenants.
You can avoid this problem by conducting careful due diligence when setting up your utility billing system. And while multipliers don’t change, it can’t hurt to double check every month to ensure billing accuracy. This is why so many properties partner with a utility billing company.
Not Verifying Utility Rates
A utility bill can only be accurate if it’s based on the correct utility rate. The problem is utility rates change frequently. If the rate increases, but you don’t bill tenants accordingly, the difference will come out of your pocket. Verifying rates is too easy of a step to ignore, requiring just a simple, monthly check for each utility.
Not Monitoring Leaks
Few problems decimate cost recovery faster than utility leaks. This is because you can’t bill back the expenses of a leak between the master meter and your submeters. A property with plumbing issues can easily lose thousands of dollars (or more) from leaks alone.
This problem can affect any property but is most common in mobile parks and older properties with underground pipes.
The only way to prevent leaks from ruining your finances is by monitoring and repairing them before they spiral out of control. Unfortunately, most multifamily properties don’t have the tools or expertise to identify underground leaks.
Here’s how to do it.
Every month, monitor how much of the total consumption that you aren’t billing back to tenants. Ideally this number is 100%, but numbers in the nineties are common. If this unbilled value is very high or suddenly spikes, you likely have a water leak.
If your property doesn’t have a submeter, you can still monitor your total consumption for sudden spikes. If there’s a big increase you can’t explain through normal factors like increased occupancy and seasonality, you might have a leak.
Using the Wrong RUBS Factor
RUBS is for properties that can’t use submeters for physical or practical reasons.
But RUBS isn’t as simple as dividing up your utility bills by a simple ratio. It involves using complex ratios and fine tuning to create a bill that tenants will pay.
There are a number of ways to allocate a RUBS bill. You can base it on the number of tenants or bedrooms. Then there’s ratio occupancy, which converts the number of occupants in a unit into a number of occupants for billing purposes. There’s also more advanced allocation methods, like metered consumption.
With so many allocation options, it can be hard to know exactly what RUBS factor to use for your property. And selecting the wrong one can hurt your cost recovery.
To select the best allocation factor, you’ll need to identify how occupancy levels and appliances impact a unit’s utility consumption. The effect of these factors on consumption is usually not a one-to-one relationship. Adding a second occupant to a unit doesn’t necessarily double consumption.
Sending Bills Late
Late invoices hurt cost recovery. Bills that don’t arrive on time throw off tenants who planned to pay on time.
A lot of people live paycheck to paycheck. Some tenants just like to pay bills the same time each month, so they don’t forget. Other tenants might wonder why they should even have to pay if their landlord doesn’t bill on time.
Consistent billing schedules give tenants a chance to pay the utility bill. And when tenants have a chance to pay a bill, landlords have a much better chance of collecting. Being proactive and making sure those utilities are billed out promptly goes a long way toward improving cost recovery.
From submeters to software, a utility billing system has many moving parts. Making sure everything is configured properly is the way to improve cost recovery.