As hotel and restaurant operators prepare for post-9/11-like operating conditions, an effective way to reduce internal accounting costs and utility consumption is to adopt a sophisticated utility data management system. The majority of multi-unit hotel and restaurant operators have utility invoices sent to their headquarters where they are processed by internal accounts payable clerks or they are processed at the property level by management who should be focused on service delivery and revenue management. While on the surface the direct labor costs may make this seem like an efficient strategy, if one were to dive deeper into the indirect costs, and opportunity costs associated with this strategy, one would quickly see that outsourcing this function has a very high return on investment.
An effective utility data management system processes utility invoices on behalf of hoteliers, which drastically reduces the operational workload of the mail-handling department, accounting department, and on-property staff. When using an efficient utility data management system, invoices are sent directly to a central processing facility where they are digitized, analyzed for accuracy, paid at just the right time, and uploaded into an analytical interface.
When utility invoices are processed at a management company’s headquarters, invoices must be sorted, opened, and prioritized, after which accounts payable clerks cut a check for the amount due, attach the check stub to the invoice and file it away, either digitally, or worse yet, in an actual filing cabinet. When processed at the property level, the general manager must approve invoices for processing by either an accounts payable clerk or controller, or invoices are sent to the management company’s headquarters, which is often located in a different state than the property itself. The shortcomings associated with these processing methodologies are presented below.
Billing Errors
It is easy for billing errors to go unnoticed when audited by accounts payable clerks or general managers—this is simply not their area of expertise. Paying utility invoices without proper auditing allows billing errors such as incorrect utility rates, meter readings, and inaccurate application of prior payments to go unnoticed. The result of inaccurate bill auditing is that operators literally give away hundreds of dollars each month to utility companies.
Even if accounts payable clerks did have such expertise, intensely auditing each invoice for a portfolio of hotels or restaurants would require a team of utility experts who would command a significantly higher wage than a standard accounts payable clerk. Intense analysis at the property level would further reduce the time that management is able to devote to revenue growth.
Cash Management
Sending payments to utility companies too early limits an operator’s ability to earn valuable interest on their cash. Sending payments too late results in costly late fees. A proper utility data management system pays invoices at just the right time, which allows operators to maximize the amount of time that their cash is earning interest and minimize the chance that a late fee will be charged. Such payment acumen drives efficient cash management, which has never been so important.
Core Competency Focus
During challenging economic times, general managers and on-property staff must focus more keenly than ever on what they do best: grow market share by ensuring that service delivery and sales and marketing initiatives are being properly executed. A general manager would be the first to admit that their expertise does not lie within the field of utility invoice auditing. By removing utility invoice processing from the general manager’s list of responsibilities, they will have more time to spend on the floor interacting with guests and staff to ensure that guest expectations and other aspects of service delivery are being properly carried out. Reducing the amount of invoices that must be processed at the property by the controller or accounts payable clerk results in a direct labor expense reduction.
Packaging and physically sending invoices in a weekly parcel to management headquarters has several shortcomings as well. This practice presents the potential for bills to be lost, arrive after the due date resulting in late fees, and it requires the task of sorting and prioritizing invoices, a task that has already been completed at the property level, to be repeated at headquarters.
Access to Data
In addition to the direct costs and opportunity costs associated with having on-property staff process utility invoices, perhaps the most compelling reason to abandon a “pay and file” system, is the opportunity cost associated with not having convenient access to utility data. Under the archaic “pay and file” system used by many operators, once invoices are stamped as “paid” and filed away, the door is closed to the million-dollar data mine that is their historical utility consumption. Rather than burying this valuable data, it should be intensely analyzed to reduce consumption.
The adage “you can’t manage what you don’t measure” has never been as fitting as in the case of utility consumption. Operators who don’t have an intimate knowledge of their properties’ utility consumption profiles are more susceptible to risks associated with spikes in energy prices that will have a negative impact on the bottom line.
In addition to minimizing risk associated with increasing energy prices, consider the importance of being able to convey performance to stakeholders such as guests, equity partners, and lenders. A proper utility data management system gives operators a new set of key performance indicators to track, just as they track occupancy, average rate and other vital performance metrics.
Competitive Shopping in Deregulated Utility Markets
Properly collecting and organizing utility data allows operators to create an accurate consumption and demand profile, which is the key to negotiating favorable utility contracts in deregulated markets. How much energy a property consumes is only part of the profile however. Timing of peak demand levels plays an important role in determining the attractiveness of a hotel’s utility profile. The more attractive the profile, the more aggressively utility companies will compete for a hotel’s utility business. Not having an accurate consumption and demand profile limits an operator’s access to money-saving competition among deregulated utility providers. Accurately documenting historical utility data allows operators to maintain accurate consumption and demand profiles that enable utility companies to quickly evaluate the attractiveness of a particular property’s utility business.
Conclusion
A proper utility data management system is the most cost-effective way to reduce billing errors, allow on-property staff to focus on revenue management, and conveniently access utility data. Accurately documenting utility consumption is the clearest way to convey environmental performance to lenders, equity partners, staff, and most importantly, guests.
John Scaggs is the director of Boulder, Colo.-based HVS Eco Services, which provides cost-effective environmental sustainability solutions for the hospitality industry. For more information on HVS Eco Services, visit them on the web at www.hvseco.com or contact John Scaggs directly at jscaggs@hvs.com or (303) 301-1128.
