Bill Pay Economics for Utilities: Three Levers You Can Actually Control

 Last Updated: December 2, 2025

Key Takeaways for Utility Leaders

• The Three Levers: You can directly control Fee Allocation, 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; disclosed fee for higher-cost credit cards) to balance affordability and cost recovery.

• 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.

For utilities and public works departments, bill pay economics comes down to three levers you can control: who pays card and ACH fees, how much it truly costs to collect a dollar (Cost-to-Serve), and how fast billed revenue turns into cash in the bank (Days Sales Outstanding, or 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 Lever)

Most utilities are under pressure to offer modern payment options while keeping rates affordable and defensible in public forums. This leads to the central debate: whether to charge a separate convenience fee or to absorb those costs in base rates.

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

• Absorb Model: Spreads costs across the entire rate base through fixed and volumetric charges.

On the customer side, add-on fees at checkout can feel like a “gotcha,” leading some households back to paper checks, money orders, or waiting until a disconnect notice arrives. This behavior matters economically because checks and late in-person payments cost more to handle and tend to drive higher delinquency and bad debt.

A Hybrid Model That Balances Cost and Experience

Many utilities are successfully moving toward a Hybrid Model that balances the cost of tenders with the need for low-barrier payment access.

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:

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

• If any scenario drives customers away from digital options toward checks and counter visits, adjust your mix so there is always at least one no-extra-fee digital path.

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 cannot spend on higher-value work like proactive outreach or data cleanup.

Segmenting Cost-to-Serve by Channel and Tender

Forward-thinking utilities are segmenting their Cost-to-Serve by both Channel (mail, lobby, web portal) and Tender (cash, check, ACH, credit).

Even a simple time-and-motion study over a month can highlight where you are overspending to collect revenue. That data provides the powerful context needed for fee discussions, RFPs, and system upgrades.

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)

Days Sales Outstanding (DSO) is a simple metric that reveals whether your payment policies and channels are helping or hurting cash flow. The longer your DSO, the more working capital is tied up in receivables instead of funding maintenance, capital projects, or resilience investments.

Manual, paper-heavy processes naturally increase DSO due to mail delays, batching, bank cut-offs, and the time it takes staff to work late accounts. Late in-person payments at the counter or drive-through further add staff time and uncertainty.

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 is 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.

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

For utilities, fee policy, cost-to-serve, and DSO are not separate conversations—they are three views of the same bill pay economics story. The right payment platform should help you: model fee scenarios, steer customers to lower-cost digital channels, automate reminders, and give finance leaders the data needed to defend decisions in front of boards and regulators.

When utilities can see the full picture—who pays fees, what each channel really costs, and how quickly revenue turns into cash—they can design payment experiences that are fair to customers, sustainable for the utility, and aligned with policy and compliance requirements.

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.