Stop Fighting Fees: Three Cash-Flow Levers Every Utility Leader Can Pull

Last Updated: December 2, 2025

Executive Summary: Key Takeaways for Utility Leaders

• The Three Levers: You can directly control Fee Allocation, True Cost-to-Serve, and Days Sales Outstanding (DSO) to optimize bill pay.

• Optimal Fee Model: Adopt a Hybrid Model (no fee for low-cost digital methods like ACH; a clearly disclosed Service Fee for higher-cost credit cards) to balance affordability and cost recovery.

• Cost Pitfall: Confusing the limited Convenience Fee rules with the flexible Service Fee program can cost your agency six figures annually, especially with premium reward cards.

• True Cost-to-Serve: Paper checks and walk-in payments often have a higher true cost-to-serve than digital payments once hidden labor, reconciliation, and overhead are factored in.

• DSO Impact: Increasing digital adoption (e-bills, autopay) is the fastest way to reduce DSO, freeing up working capital for essential utility operations.

If you’re a utility leader, your day-to-day work often feels like a balancing act—especially when it comes to billing. But the truth is, you can directly control the economics. It really boils down to three things: Who pays the credit card and ACH fees, how much it truly costs to get the money in the door (your Cost-to-Serve), and how fast that revenue hits your bank account (DSO).

When these three levers work together, you can improve affordability, reduce shutoffs, and protect your operating budget without constant fee and rate battles.

1. Who Pays the Fees? (The Affordability & Compliance Lever)

Every utility is under pressure. You need to offer simple, modern ways to pay, but you also need to keep those base rates affordable and defensible in front of the board (or the public). That immediately brings up the central, sticky debate: Do you charge a separate fee, or do you quietly absorb those costs into the base rates?

• Service-Fee Model: Pushes costs to the smaller group of customers using cards. Keeps base rates lower.

• Absorb Model (utility pays all fees): Spreads costs across the entire rate base through fixed and volumetric charges.

Let’s face it: on the customer side, that extra fee at checkout can feel like a total “gotcha.” And what happens? They go back to paper checks or money orders. This seemingly small frustration matters, because those checks and late walk-in payments cost you more to handle, leading to higher delinquency and bad debt down the line.

Convenience Fee vs. Service Fee: The Critical Distinction

The distinction between fee types might sound like technical fine print, but it determines your compliance and financial success. Many utilities mistakenly use the old Convenience Fee model when they should be using the more flexible Service Fee model available to government and utility sectors (MCC 4900).

A Hybrid Model That Balances Cost and Experience

A lot of utilities are successfully shifting to a Hybrid Model—it’s the smart way to handle high-cost payments while still making sure everyone can pay easily.

This hybrid approach is easier to defend to boards, councils, and customers: everyone gets at least one easy, no-extra-fee digital option, and any surcharge is clearly tied to a payment method that costs the utility more to accept.

Recommended Actions:

• Evaluate eligibility for the Service Fee program based on your Merchant Category Code (MCC).

• Revise your current fee policy into plain language and test it against three key customer scenarios (e.g., low-income payment plan, landlord, commercial account).

2. What Does Each Payment Really Cost? (The Efficiency Lever)

Every utility tracks metering and infrastructure costs. Far fewer have a clear view of what it costs just to take a payment and post it correctly—the Cost-to-Serve. This cost includes not only card and ACH fees, but also mail handling, cash controls, exception resolution, and reconciliation labor.

Because labor and overhead are spread across departments, the true cost of a paper check often hides in “admin” and “customer service” instead of appearing as a clean line item. When you fully load these costs, paper checks and walk-in payments are frequently more expensive per dollar collected than digital payments, even after card fees are accounted for.

Digital channels centralize work, reduce errors, and make reconciliation more predictable. Time spent opening envelopes, keying amounts, fixing misapplied accounts, and balancing drawers is time staff can’t spend on higher-value work like proactive outreach or data cleanup.

Recommended Actions:

• Pick one billing month and count how many payments came in by each channel and tender type; then, estimate staff minutes per payment type.

• Convert minutes into dollars using fully loaded hourly rates and compare “cost per $1,000 collected” across methods. Use this data as the foundation for future technology and rate decisions.

3. How Payment Mix Impacts DSO (The Cash Flow Lever)

We all know DSO (Days Sales Outstanding) matters, right? It’s the simple measure that shows you if your payment setup is your best friend or your worst enemy when it comes to cash flow. If your DSO is long, that’s just working capital you can’t touch for big investments. And here’s the kicker: manual, paper-based processes are practically designed to stretch that number out, thanks to slow mail, batch errors, and having to manually chase down every late payment.

The longer your DSO, the more working capital is tied up in receivables instead of funding maintenance, capital projects, or resilience investments.

Digital Adoption and Earlier Payments

Digital channels can pull DSO down in three important ways:

1. Faster Billing: Customers receive bills faster (e.g., e-bills and digital notifications).

2. Convenience: It’s easier to pay immediately from a phone or computer, or to enroll in autopay.

3. Proactive Nudges: Automated reminders around due dates and before shutoff nudge payments earlier in the cycle.

Organizations that move a significant share of customers to e-billing and digital payments often reduce DSO by several days without changing credit terms. For utilities, even a small reduction in DSO translates into meaningful improvements in cash flow and reduced reliance on reserves. For a utility with $10M in monthly revenue, reducing DSO by just 3 days frees up approximately $1M in working capital.

Recommended Actions:

• Calculate DSO for the last 12 months and, if possible, break it out by payment behavior (e.g., autopay vs. non-autopay, paper vs. e-bill).

• Set a realistic target, such as reducing DSO by 3 days over the next 18–24 months, and tie specific actions (e-bill enrollment campaigns, autopay incentives) to that target.

Connecting the Levers to Your Payment Platform

Here’s the key takeaway: for utilities, fee policies, cost-to-serve, and DSO aren’t separate things—they’re all part of the same bill pay story. Your payment platform shouldn’t just process payments. It needs to help you model fee scenarios, gently guide customers toward cheaper digital options, automate reminders, and, most importantly, give your finance team the hard data they need to defend decisions to the board and regulators.

When you see the full picture—who pays the fees, what each channel really costs, and how fast cash comes in—you can build a payment system that’s fair to your customers and completely sustainable for your utility.

FAQs

Q. What is the difference between a Convenience Fee and a Service Fee?

Answer: Convenience Fees must be a flat, fixed amount and apply to all payment methods (card, ACH) in the alternative channel. Service Fees are available only to certain merchants (like utilities), can be a percentage of the transaction, and allow you to charge fees on credit cards while offering ACH at no charge.

Q. Can I charge a fee on debit cards?

Answer: Generally, no. Card network rules prohibit surcharging debit cards. Compliance is complex and often hinges on proper card type identification and adherence to local laws.

Q. Why are digital payments often cheaper than paper checks for a utility?

Answer: While paper checks don’t incur card network fees, they have a higher True Cost-to-Serve. This includes hidden labor costs like mail processing, manual data entry, reconciliation, error correction, and physical bank trips. Digital payments automate these steps, significantly reducing overhead and labor costs per transaction.

Disclaimer

This article is provided for general information and educational purposes only and does not constitute legal, financial, accounting, or regulatory advice. Utilities and government entities should consult with their professional advisors to evaluate fee structures, rate designs, and policy changes in light of applicable laws, card-brand rules, and local requirements. Any examples, metrics, or scenarios discussed are illustrative only.