The Fallout of Billing Blunders: Many Corporate Billing Errors May Yet Be Uncovered

Posted in Articles, Billing
Bills are often acknowledged as the single most important touch point with the customer. As such, billers strive to make the presentment and payment process easy and painless. Since a company’s revenue stream flows from the billing process, it must be effective and efficient. If it is not, companies can face the fallout of hundreds of thousands of dollars or more in back payments, lost revenue, damage to their reputation or, even worse, significant customer churn. Likewise, if a company is not billing enough, it stands to lose countless amounts of uncollected revenue.

The numbers are staggering. Bill auditors are finding mistakes on customer bills that total hundreds of thousands and sometimes millions of dollars. “It’s not unusual to see six-figure refunds these days,” says Jeff Barber, vice president of Accu-Rate in El Paso, Texas.

According to Duffy Mich, chief executive officer of Intelecom Systems Inc., the administrative costs that a provider faces in sifting through data to unearth mistakes can often dwarf the revenue that it would have earned from selling the services.

Utilitech, a company that has been in business for nearly a decade, audits a variety of utility bills as well as telecommunications bills for 750 to 800 clients. The company typically analyzes a year’s worth of a customer’s bills, checking for accuracy, and compares them to contracts and tariffs. It compares what the bill says the customer has versus what the customer physically has. “All those should theoretically match, but in the real world that’s not what happens,” says Steve Bobick, company president.

Common Mistakes

For the most part, nonadherence to contracted rates is one of the most common errors. For example, a long-distance provider may say it will charge a certain amount per minute, but it actually turns out to be more, once the rate is analyzed. Sometimes, Bobick notes, rates accidentally go up when a customer has a contract that should protect the price for a set number of years, or a company with several discounts will get all of its discounts one month, but fewer the next month. Many times discounts can accidentally be removed. This happens a lot, he says.

Barber says other common mistakes include incorrect mileage rates for data lines or misapplied taxes. For example, one of his clients was billed for the gross receipts tax from another state. “I would suspect it was a programming error,” Barber said. “The question here is: Are this particular provider’s clients paying this tax and not picking up on it because somebody programmed the switch incorrectly?”

Another cause of confusion stems from special marketing and promotional campaigns. Mich recalls how the marketing department of one company rolled out a new promotional campaign that was good for eligible customers for three months. Yet every customer, eligible or not, received the discounted promotional rates. The company didn’t find the error until 17 months later.

“We’ve got discounts upon discounts upon discounts. It’s almost impossible for the poor unsuspecting client out there—the end user—to be able to monitor that,” Bobick says. “I honestly feel that the more complex providers can make it, the better off they are, because then the customer doesn’t know if it’s right or wrong. Some of these providers just overwhelm you with information; and yet most of it is meaningless, because they don’t actually give you all of the pieces necessary to actually price out your product.”

Scrutiny Pays

Many bill auditors and experts acknowledge that customers often ignore the line items on their bill and just pay it regardless. This is how billing errors slip through the cracks and continue for so long.

“Lots of times customers do not scrutinize their bill,” says Linda Gimnich, principal at The Management Network Group Inc. (TMNG). “Sometimes the bills are so complicated that customers can’t figure out if it’s right or wrong, so they just say, ‘It looks close to what I’ve been paying the last three to four months,’ so they will pay it.”

Utilitech’s Bobick says that most customers have no idea what is lurking out there or what may have been overpaid. Most people look at the bill and say it’s 5 percent plus or minus from last month and cut a check, he says, but it could have been wrong for the last three years. “We’ve had clients that have had mistakes that have been buried in their bills for 30-some years,” Bobick recalls.

One of Bobick’s clients had three bills: local, long distance, and a third for T-1s and circuits. One month a $5,000 flat fee appeared on the bill for the circuits and T-1s. Someone had entered in a code and a dollar amount to go on their bill each month and it just started appearing. This went on for more than a year before being discovered as an error. The customer received $62,000 rebate from the service provider. “That would have gone on forever, because that was one of those errors that, once it got through the first month, there was almost no variance on that bill,” Bobick comments.

Barber points to one example of a client whose cellular telephone bill came in by UPS. It was a master bill for 700 cellular telephones that was on 8½-by-11 paper piled approximately 3 feet high. The client delegated it to division managers to review. “They just measured the height and if it was similar, they paid it,” Barber says.

Making It Understandable

“I think that being able to provide the information on a bill in a very straightforward, clean manner is very important,” Gimnich says.

She notes that the trend over the last 5 years of cramming things together in such a way that people can’t figure them out has caused a “simplify billing surge” that has forced providers to really examine the problem.

Gimnich says not having enough information on the bill is a problem for both sides. “It’s a problem when you’re the company trying to verify bills, and when you’re the customer trying to figure them out,” she says. Having discounts or taxes broken out into different line items versus being lumped together are options companies should look at.

“There should be a simplified but consistent way that all companies are required to bill,” Bobick insists. “At least, give the minimum pieces of information that paying customers must have each month. But, to be honest with you, most of the customers couldn’t even handle this information.”

Overbilling: Adding It Up, Plus Some

“If you look at all of the mistakes we’ve found over the years, 99.79 percent of them are not in the favor of the client,” Bobick says. “But most of the mistakes we find are not intentional, they just sort of happen—yet how do 99.79 percent of them happen in the provider’s favor? It’s just sort of one of the miracles of life, I guess.”

Barber agrees that overbilling is more common. In Accu-Rate’s 11 years of experience, the breakdown is about 95 percent overbilling versus 5 percent underbilling.

One area where mistakes are likely to happen is in the growth market of leasing. Often, Barber says, people are leasing services that are not delivered. Likewise, many people don’t educate themselves about equipment needs or competitive prices. For example, one hotel paid for five years of service for seven lines that had never even been connected, Barber recalls. And one company paid $79 per phone on which it made only 1–3 calls a month.

Barber also recalls a sheriff’s office that had a direct line to the home of a sheriff who had actually died in 1963. The line did not carry a call for 24 years, yet the county government was still billed because no one ever told the phone company to turn off the service.

Intelecom’s Mich cites how one company messed up its billing increments. Every call was overbilled by 12 seconds. This totaled $2 million a month.

Bruce Reynolds, senior director of billing for the CLEC Allegiance Telecom Inc., says that the company tests the accuracy of its bills during every bill run to ensure they are correct. “On overbilling,” Reynolds says. “If it is our error, we will eat it.”

Bobick comments that sometimes even when Utilitech detects and error and it is thought to be corrected, it can occur again. “It isn’t just okay to fix it once. In some places we’ve had to fix it two and three times to get it right for one client for one issue,” he says.

By law, companies must credit back overbillings. Mich, however, believes it is more than a legal issue—it is an ethical issue, because the overbilled amounts can lead to a distorted view of a provider’s revenue.

Underbilling: Revenue Down the Drain

While overbilling may be more prevalent, service providers can’t ignore the impact of underbilling. Mich recalls one drastic underbilling incident. A company used the formula to calculate mileage for rating. Multiplied by the number of customers, the total underbilling cost the company millions of dollars per year over a 6-year period.

According to Accu-Rate’s Barber, one of the most common underbilling mistakes with local exchange carriers is the failure to bill a customer for lines that are hot. On the long-distance side, he says, the problem is billing below tariff or below contract: “You don’t need to be a rocket scientist to know that nobody is providing switched business service at 2.5 cents right now. If someone is getting that rate, somebody messed up.”

So how does a company collect revenues never paid due to billing errors on its part? “Companies will rarely go back and bill if it’s been in the client’s favor,” Gimnich notes. She adds that most would not bill for anything that is more than 60 days old. “Anything that you bill that’s over 30 days is suspect and less collectable” (see “Top 10 Billing Errors,”Billing World, March 1999).

Many companies will negotiate with clients, Bobick says. The provider’s actions usually depend on the size of the customer, how badly the provider wants to keep the business and the amount owed. “You’re jumping into what could very quickly become a legal issue. If [the provider] can prove that they should have billed them another $50,000, and the customer says they are not going to pay it, then they have some leverage.” The provider could cut off the customer as a last resort, or it could offer payment plans spread out over a series of months.

Man versus Machine

Prior to working as a consultant at TMNG, Gimnich managed billing systems at companies for 18 years. “Unfortunately, anything that is wrong on the bill, people say it’s the billing system. In my experience, I would say 70 to 80 to sometimes 90 percent of that actually is the result of human error,” she says.

“Typically, it’s just a person making a mistake in entering in data,” according to Barber. For example, a wireless service was charging $5 a minute. “I think it was just a slipped digit, where it should have been 50 cents.”

“It’s still amazing to me how many people have order entry systems that will let you put in garbage,” Gimnich says. To deal with problems that arise during order management, CLECs often turn to systems that offer certain edits. Allegiance, which uses MetaSolv’s TBS system, does not use free-form fields. “It is narrowed so the opportunity for error is not as pronounced,” according to Reynolds. Getting the error ratio down is a challenge he says all providers face. A company wants to automate to eliminate error, but it also must not introduce systems that are too rigid to be productive.

“It’s a double-edged sword. We must be careful to allow a system to be somewhat flexible without creating a revenue assurance issue. If you give a multitude of choices for a CSR to build a package, it is more prone to error,” Reynolds says.

Allegiance also has an in-house system to monitor billing accuracy that sits outside the billing system and performs checks on random samples.

Mistakes can happen anytime there is a change—a customer completes a contract renewal, adds 10 lines, moves or adds a service to replace a service. “It’s like setting up a new customer, and the people who physically take down the information or add it into the computer just aren’t careful enough,” Bobick comments. Connexn Technologies’ President and Chief Executive Officer Charles Crenshaw says mistakes made along the way—from the time the order is taken to the time the bills are run—are only magnified in the billing system.

And Bobick points out that 25 percent of all the changes his company makes must redone because the provider does not input them correctly when trying to fix the problem.

Eliminating Human Error

Many mistakes occur because the software allows it to happen. “Companies keep letting people do stupid things, rather than putting the right edits and controls in a system,” Gimnich says.

It is critical to do testing prior to the actual bill run, she adds, stressing that the business department—not the IT department—must do the testing, because its primary focus is collecting the revenue.

Companies must have good tools for checking and balancing and rechecking when entering data in rate tables. Mistakes can occur if a company enters in a wrong rate, adds incorrect holiday rates, or fails to halt certain rates on a certain day.

“Ideally, a good rate table has stop and end dates so that a company can enter them well ahead of time,” Gimnich says. “That way, they don’t have to test in a live environment.”

She suggests having rate and invoice verification at least on a daily basis, or as often as the company runs its rating and billing system.

“Usually people will bring in events and rate them, and then they will save them until it’s time to bill. Then they will look at all of the usage and apply discounts,” Gimnich notes. “You need to check those rates every day and check them against the original intent for that product to make sure that nothing has gone wrong. It’s better than waiting a whole month to find out that you had that rate wrong, and then you’ve rated a whole lot of people wrong.”

She adds that sometimes changes do occur in production: “Even though there might be a testing process in place, at midnight, when something crashes, somebody goes in and changes something to get it to run, and it can screw up your billing. So it’s very important to do invoice verification on at least a sample of your bills prior to the time that they go out.”

She recommends that a company keep a written checklist of everything that must get done with regard to billing, as well as everything that has ever gone wrong, so it can be checked and corrected if needed.

Some systems on the marketplace can check the output based on business rules when the provider runs the bills. But systems must become more intelligent. “We need systems to be user-proof, so that common errors are not made,” Gimnich says.

“Automation, to me, is a tool,” she adds, “and to whatever degree it provides more insight or makes problems or issues more obvious, that’s the value—or to tell you that everything is operating properly, things like exception reporting, or having ad hoc reporting capabilities.”

Bobick says that service providers must audit their actions either by hiring the expertise in-house or by outsourcing. “I typically don’t believe in asking the vendor to do it, because that’s like asking the fox to watch the henhouse,” he comments.

Statutes of Limitations

Generally, with most states, the statute of limitations for collecting on overbillings is 36 months—if the client has a pretty clean audit trail, Barber notes; yet that does vary. In one instance, he went back nine years to reclaim monies incorrectly billed to a customer.

“It depends on the issue, and it depends on the provider,” says Bobick. If you’re dealing with a local or state government, they have statutes of limitations. We’ve seen it as short as three months, and we’ve actually been able to go back in excess of seven years.”

For some customers, trying to reclaim what is owed may be a challenge, or even impossible. Barber cites one client that overpaid $200,000 because of billing errors; but ultimately, the provider that charged them incorrectly went Chapter 7, so the money was never reclaimed. It illustrates, he says, that just because a provider owes a customer money doesn’t mean the provider can actually pay it back, especially if margins are thin.

The Fallout

“Bad billing makes people question everything,” Gimnich says, and fielding calls to call centers, especially in large volumes, can cost a pretty penny.

Often companies don’t always pay attention to problems until the disasters start to mount up. “To me, the worst thing that could happen,” she says, “is that a customer tells you about your problem.”

Mich knows of one company that, upon realizing it had overbilled, had a “sweep it under the rug” reaction and decided not to tell the customers. When customers realized they had been overcharged, they left the company because it had lied to them. Customer churn is a high price to pay for whatever billing error may have occurred.

He says the best practice is to notify customers immediately to alert them of errors and to rectify the situation. It is more of a customer service measure, but it can easily be escalated into a financial problem if customers lose trust in the accuracy of a company’s billing practices.

From a CLEC standpoint “churn is very key to us—so it’s in our best interest to get it right,” Reynolds says. “We have two touch points for the customer—the dial tone and the bill. We want to get it right. We want them to call about getting more services, not to question the services they’ve already got.”

Going to Court: The Rare—But Bitter—Battleground

When billing mistakes occur, how do they get settled?

Many cases never land in court unless they are sizable. Instead, they are negotiated individually between company and customer.

“It’s rare to go to court—I’d say 1 to 2 percent. Generally you just don’t go to court, because of the legal dollars involved,” says Jeff Barber, vice president of Accu-Rate. “The people that do the litigation are the class action folks that go after the local exchange carriers and the long-distance providers when they are overbilling up to 100,000 clients. Yet, that does happen a lot more than people realize.”

One Utilitech client saw the complexities of the courtroom firsthand. The client had a number of locations in eastern and central Pennsylvania. Prior to the divestiture in 1984, he had a computer circuit at each location. When the divestiture occurred, the LATA boundaries were established, and trouble began for the client. Once the business sites fell outside the regional Bell company’s LATA, the RBOC could no longer provide the service for the circuit; that would have to come from a long-distance carrier.

When Utilitech came in 14 years later, it examined the client’s local bill for that one location, and it found that the client was still being invoiced for that original Bell circuit from 1984. “They never took it off his bill,” Utilitech President Steve Bobick states. “They didn’t provide it, but the customer was still getting billed for it. I guarantee you, there are still some out there like that.”

Bobick states that the customer was paying for a nonexistent circuit for 14 years, totaling around $40,000.

According to Bobick, when they approached Bell Atlantic they were offered a $6,000 check. The customer decided to fight it when Bell Atlantic didn’t offer to pay what it owed, claiming a statute of limitations of three years. The company filed with the public utilities commission, which said they would have to file a lawsuit.

“After a year and four months of attorneys bickering with each other, they got absolutely nowhere, and the customer finally said, ‘Look, I’ve invested way too much money in this now, I’m dropping it,’ ” Bobick says. “That’s their strategy. They have lawyers who work for them that have nothing better to do than to tie up other lawyers in litigation. They’ll outlast you.”

Bobick says he has yet to see any plaintiffs win court cases against the providers. “The only way you can win is to at least get them to negotiate something. You cannot get it done through the courts.”

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