The $700,000 late fee: when time is not on your side

For one management firm, finding lost revenue and relief from rising energy costs was as simple as paying utility bills more efficiently.

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In early 2006, Houston, Texas-based Alliance Residential Management, LLC. (not to be confused with other firms by similar names in Phoenix and Chicago) managed a portfolio of 45,000 units across 150 B and C class apartment communities. As a predominantly owner-managed company, Alliance’s mainstay is managing operational costs and creating value for its owners and investors. By moving the task of utility bill processing from on-site staff, and outsourcing it to a provider more adept in both bill processing and utility management, Alliance not only streamlined payables, but saw immediate fiscal savings in late fees and penalties they had accrued from the utility companies; upwards of $700,000 in late fees alone dissipated and were completely gone within a 12-month cycle.

Buying time
The math was simple. Each Alliance-managed property processed upwards of 14 utility bill transfers a month according to Mark Copeland, Alliance chief operating officer. This was based on resident move- outs where the unit had become vacant or the new resident had yet to transfer the utilities to their name.

Across 150 properties with over 2,000 utility bills hitting the portfolio each month, the numbers quickly became a compelling argument for automation. National standards place bill processing costs at $10 per bill creating a quarter-million-dollar line item for the Alliance portfolio, and keyed on-site staff and corporate personnel not necessarily versed in utility rates and regulations, as the gatekeepers on the transactions.

To solve this problem in 2003-04, Alliance outsourced the payment of its property utility bills to Atlanta-based USI Energy which was purchased by German-based Ista North America, but the predominantly European company was in a constant state of flux with a succession of acquisitions and mergers, and Alliance began to notice gaps in its utility payables “We immediately began transitioning our properties by region to NWP Services Corporation in Q1 2006,” said Copeland. “By May we were completely on board with NWP’s UtilityPay Manager program and the returns rolled in like turning on a faucet. The difference was significant and turned heads with our owners and investors.”

Within 12 months, Alliance, the first company to take a large portfolio online with NWP’s system, saved more than $700,000 in utility bill late fees and penalties alone. At the time, the company was operating in fourteen states creating the colossal task of navigating the billing cycles of more than 100 different utility companies. UtilityPay Manager not only reduced Alliance’s bill processing administrative costs, but also resulted in a higher rate of billing accuracy, curbed over payments, provisioned funding options and provided better management of turnovers when residents were lax in transferring utilities to their names. Quick identification of utility fraud was also a benefit of the program.

“Considering the average utility bill runs between $75 to $150 a month on our properties, absorbing the expense when residents fail to transfer or maintain utilities in their name is a costly proposition,” Copeland said. “With the transparency of UtilityPay Manager, we identify breaches and rectify them rapidly by sending out a notice in the form of a bill to the non-compliant resident. The product gives us field advantage with regard to lining up utility charges with the appropriate party.”

Irvine, Calif.-based NWP Services Corporation, the company behind the product that spun gold for Alliance, got its start in 1995 providing sub-metering equipment and service. Like many suppliers filling the needs of the industry, NWP noticed a gap in bill processing services for the unique dynamic of apartment operations. NWP now provides financial transaction processing exclusively to the multifamily industry. The company’s goal is to accelerate the financial performance of multifamily portfolios through one or all of its financial transaction products–UtilityPay Manager, Resident OneBill, Resident ePay and the company’s sub-metering services.

“Coming from the inside of apartment operations, we saw a lot of lost money falling through the cracks, not only in bill processing at the communities, but in the way utilities were managed with regard to unit turnover,” said NWP CEO Mike Radice. “We knew we could provide immediate fiscal value to owners and operators and Alliance delivers quite a compelling case study. Mark is a brilliant numbers guy. He was able to see the return before we even got boots on the ground on the deal.”

How the program works
The UtilityPay Manager program is a three-step process that is unique to NWP. First, a company’s utility bills are redirected to NWP’s processing partner and the nation’s largest bill processor, Cass Information Systems of Columbus, Ohio. Cass is connected to over 36,000 utility companies nationally. As NWP’s pro-visionary, Cass can effectively integrate with all the major multifamily management software, so the majority of work is done electronically.

Once a company’s bills are reviewed and processed, the UtilityPay Manager issues payment and creates general ledger files that are electronically fed back the company’s management software, which in Alliance’s case is RealPage. Alliance also took advantage of NWP’s bill funding options allowing the program to submit payments within split-second correlation to due dates, avoiding late fees and penalties.

Finally, all data is collected and trending reports created in order to benchmark performance into the future.

Alliance update
At the end of 2007, the leadership of Alliance Residential Management, LLC. changed. Andy Schor struck out on his own to form a new venture, while Steve Ivankovich remained as CEO and chairman.

During this change, Alliance’s largest joint venture partner, Babcock and Brown, transitioned the management of 20,000 units to its in- house management company, Babcock and Brown Residential (BBR).

The deal left Alliance with 20,000 units, and a unit make-up of 75 percent class C and 25 percent class B properties. Within the remaining portfolio, a property in Florida and another in Texas were sold off, and two went back to the lender, clearing about 5,000 units from the final agreement.

Today, Alliance operates communities in Arizona, Texas, Indiana, North Carolina, Tennessee, Georgia and Florida.