Is your business feeling challenged when it comes to managing utility bills? You’re not alone. Utility costs often rank in the top three operational expenses for retail stores, restaurants, grocers, hotels, banks, healthcare companies and many other types of multi-site businesses. These costs can translate into significant savings opportunities—as well as significant challenges. Having an efficient utility bill management process and leveraging utility bill data is your opportunity to control costs—and accounts payables holds the key.
Utility Bill Management Challenges & Opportunities
Finance, accounts payable, energy and facility professionals are doing their best to manage thousands of invoices from hundreds or even thousands of utilities with varying systems, bill periods and bill-level detail.
All these variables can make efficient utility expense management a struggle. In fact, these factors often lead to missed invoices, late fees, shut-offs or even overpayments for businesses.
Plus, data from utility invoices is rarely captured and analyzed to spot overlapping service dates, billing and meter errors, spikes in energy or water consumption and demand, or other usage anomalies—all of which can significantly limit your organization’s ability to strategically manage these complex payables.
At the same time, data from these monthly utility bills—electricity, natural gas, water, sewer, telecom, waste, and other complex payables—contain a wealth of information that can support your company’s fundamental goals, such as:
- Providing insight into energy spend (cost) as a line item to track
- Allowing AP teams to identify savings opportunities
- Presenting finance departments with reliable data for improved budget management, leading to more accurate forecasting, reporting and fiscal planning
- Understanding how and where you are using energy (cost and consumption trends)
- Providing energy and facility teams with data insights to target and improve controllable inefficiencies
- Helping purchasing and facility teams to leverage site, regional, and portfolio-wide cost and consumption data to support informed energy sourcing and identify rate savings opportunities
But for any of this to be possible, you need access to accurate, reliable bill data.
Is Your Bill Data Accurate & Reliable?
As noted earlier, supplier has their own invoice format, tariff structures, and billing practices, making data collection and management a cumbersome task. Missing, estimated, and corrected invoices add to the complexity. Up to six percent of invoices are reissued by utilities, and over nine percent of utility bills end up missing or late.
In addition, a constantly changing inventory of locations and organizational structures create an environment ripe for inaccuracy.
The impact of bad data extends beyond a single error, since it is the baseline for future accrued expenses, budgeting and trend reporting. Without access to good, comprehensive data, you lack the information to address stakeholder concerns.
Consider these scenarios:
It’s no surprise, then, that relying on inaccurate data can erode trust, create confusion, and damage the financial health of your entire organization.
Utility Management & Billing Best Practices
To overcome these challenges, you need to capture the detailed cost and consumption data on each bill to successfully audit all of the resources your organization uses, such as electricity, natural gas, water, sewer, telecom, waste, and other payables.
The following strategies will help you identify billing errors and potential shut-offs and give you visibility into how and where your resources are being consumed.
With this data, your organization can conserve resources and reduce costs.
Step 1: Capture down to-the line item across all utility bills
Have a process for collecting data from utility bills, such as energy measures—kilowatt hours (kWh), service dates, demand (kW) and demand charges.
It’s critical to capture all of these elements to gain and share the insights that this data can provide and spot exceptions, such as incorrect meter readings or meter multipliers.
Not only can line-item data provide insights to billing errors, it can also support your company’s comprehensive sustainable resource management strategy.
Data collection and storage should be done consistently across all locations and all bills to create a database for reporting, supporting trend analysis and benchmark reporting.
Watch for different types of invoice formats, billing cycles and charges as each can vary from utility to utility.
Step 2: Conduct a pre-payment audit
Audit your bills to check for overlapping or missing service dates, types of charges and usage. Identifying potential billing errors prior to utility payment processing will help ensure that you do not overpay for the resources you actually used and also eliminates the time-consuming task of working with vendors to obtain a credit on your next bill.
As many as nine percent of utility bills arrive late, so having a system in place to identify these in advance of late fees or shut-offs is critical.
Step 3: Create a baseline to support trend analysis
You need to capture and know where your true costs are and how your spend breaks down. With line-item data from utility bills, you can identify separate charges by resources, and create a baseline for each of these utilities.
This data will be useful to finance as well as energy and facility teams in support of year over year and month over month trend analysis and can be applied to managing both your supply and your demand.
Utility billing practices can greatly affect your accruals and financial reporting. Re-bills, or bills that are issued more than one time due to corrected data, are one of the most common reasons for organizations to feel the impact of bad data.
Without the proper processes in place to address these re-bills, organizations will find their accruals and financial reporting is significantly off, as the incorrect invoices are now the baseline for future accrued expenses and budgeting and tracking of your trending.
Detailed focus on comprehensive, accurate data and a proactive approach to correcting errors ensures all stakeholders have reliable data for strategic decision making.
Use Good Data to Create Accurate, Defensible Utility Budgets
Utility budgets are complicated.
Beyond creating your annual budget, adjusting to the performance of the previous year, and working within the established budget as the year progresses, strong financial management requires careful planning and access to quality cost and consumption data.
The larger your budgeted resource spend, the more critical it is to have a budget backed by documented assumptions that you can share throughout your organization. This will help you manage through periods of changing conditions.
No matter how mature your utility budget practices are today, these four best practices can help you create and maintain resilient utility budgets.
Best Practice 1: Start with site-specific baselines
In the utility budget, the simplistic approach of a top-down baseline may lead you astray. Vendor bill timing or erroneous accrual calculations that affect your GL can cause issues if used solely to plan for next year.
Instead, start at the account level and establish baselines for both usage and unit price. This will make your budget much more accurate, while providing better insight into how to respond to unforeseen changes.
In determining this baseline, consider billing periods and how they relate to your financial booked expense. Also, be sure to involve stakeholders early in the process. While this approach is more intensive initially, early buy-in will garner support for the process and deliver a more accurate and reliable budget.
“Energy management has become more complex, and with that complexity comes opportunity. My ability to control rates might be limited, but I have unlimited opportunity to forecast, budget and manage consumption.” — Dennis Calik, National Bank of Arizona
Best Practice 2: Track accruals against budgets
Unlike other budget category expenses, you cannot simply track accruals based on the bills paid:
- The length of billing cycles can vary dramatically between utilities. Some water companies, for example, bill every three months, while many electric and natural gas providers bill monthly.
- Bills received in a given month largely reflect usage from the prior month. It is important to align your resource budget according to the month used, rather than month billed.
- In shoulder months, when you are transitioning from winter to spring or from summer into fall, heating/cooling usage is either declining or increasing (see chart below). Both seasonality and weather patterns need to be considered when projecting expenses.
Creating accurate and timely accruals will minimize your exposure to budget variance.
Best Practice 3: Track variances by both cost and usage
While accounts payable’s primary focus is on the dollars, it is important to consider how usage affects and drives resource expense.
As you build your utility budget, track and document the individual components of resource costs: unit cost and consumption. This will support variance analysis when budget discrepancies occur and help you address questions about why your budget is off. This information can then be shared with your energy and facility team to help them understand the drivers and help you address stakeholder questions about why the variance occurred.
Best Practice 4: Use variance analysis to “manage down” in the organization
Most data analysis will inform a relatively simple explanation of what’s going on from a utility spend standpoint across your portfolio. This analysis can help you determine what actions are available to your company for improving results, allowing you to:
- Ensure expenses are allocated correctly
- Identify trends in variance that support re-forecasting usage
- Reduce future surprises by understanding where fluctuations in utility spend originated
Use the financial data to spur a closer look at a specific site where expenses are higher than projected. Is the variance caused by an issue in the budget, or has something occurred at the site that should be investigated or addressed, such as a leak or failed meter?
A data-driven approach extends beyond AP and finance
Not only does good data benefit your AP and finance teams. This quality resource data can also be leveraged by stakeholders across your organization to support sustainability and improve efficiency.
Multi-site companies face many challenges—hundreds or even thousands of sites to manage, ever increasing costs, and extremely complex information from their utilities.
Inaccurate or poorly managed bill data from these utilities can hinder your company’s ability to manage costs and resource consumption. Reliable data is key to reducing billing errors and planning a comprehensive energy and sustainability management strategy. The best practices discussed can provide greater visibility into utility bill data, so you can remedy errors, identify optimal utility rates, and provide your stakeholders with information to make confident decisions about capital investments—resulting in significant cost savings for your company.
What are your biggest utility bill management challenges? What utility billing systems or processes do you use?
Fill out the form below to download a PDF of this complimentary ebook and save it as a resource to help you unlock the enormous value hidden in the thousands of bills you receive each month from your utility providers. The PDF contains bonus material to learn how the data driven approach we’ve outlined above can not only add value to the AP and finance organizations, but also serve as the foundation for strategic decision making across the broader organization for increased value.