PT the Auditor
I Just Want to Validate!
It is a rare Earth moment when a parking ticket is validated. This activity is most commonly found in the U.S. parking industry. As we travel outside the U.S., the use of validations becomes less and less.
Even within the U.S., the use of validations varies widely depending on geographical areas. Tenant-provided validations in the larger East Coast cities are rare, but in Southern California, these often account for as much as 90% of all of the transient tickets collected during the day.
So what then makes validations so important to understand when setting up a program? Depending on the choices made, a different amount of revenues will be produced by the validation program:
Is the use of the validations an accounts receivable event or debit/COD against an account balance? Is the validation time or money off the fee?
Consider the costs of maintaining an A/R validation versus a debit or COD program. In an A/R program, the operator must maintain an ongoing account of the validations used and their value. Periodically, an invoice must be generated requesting payment for the collected validations.
If the operator missed a validation when searching the tickets, then no one is charged for the ticket and it was truly a “free” ticket. Consider the cost of maintaining the account, invoice generation and cost of money when floating the value of the tickets until the account is paid.
The opposite option is to have the account holder of the validation prepay for the validations. This is always a better situation for ownership, because the owner now has the access on the money float until the validation is redeemed.
We also know that many tenants over-validate tickets and that not all validation “stamps” are ever used; they simply get “lost” somewhere in the drawer. At a minimum, the over-validation and lost factors result in a 12% to 15% factor.
Time or Money? Chicken or the Egg?
Let’s assume a simple rate structure of $3/hour with a $15 all-day max rate. The maximum all-day rate is reached at 4 hours and 1 minute. The stamps are sold as 1-hour validations. The customer parked for 6 hours 15 minutes. If the stamps are redeemed at the time value, a total of seven stamps are necessary to have the customer exit for free, or a value of $21. If the stamps are converted to be equal to the cash value of the hour, then only five stamps are needed, and the redeemed value is $15.
What happens if the rates are not uniform for each segment? Consider a rate structure like this:
Up to 1 hour $3
Up to 2 hours $7
Up to 3 hours $12
Up to 10 hours $15
Maximum to 24 hrs $18
How do you use 30-minute or 1-hour stamps, and at what value are they sold for?
And since we are looking at how validations affect revenue, what about the “grace period?” There are three grace periods commonly in use in the parking industry the Turnaround, Continuous and Exit – for central pay-on-foot terminals. All have an impact on the revenue collected, and depending on consumer affairs regulations, some central/POF graces may be incorrectly applied.
The Turnaround grace is a holdover from the old mechanical system, when every piece of equipment had its own time clock. Over the course of the day, the times could vary by several minutes between the individual clocks in a piece of equipment.
Remember the ticket dispenser with the clock hands on the face showing what time it was? But the clock hands were not synched with the time-stamp wheels of the clock imprinter when the ticket was dispensed. The exit clock or cashier terminal had its own clock as well.
Most operators gave a small grace of a few minutes to allow for the differences between the various clocks. With today’s computer-driven systems connected to the Internet and synched with an atomic clock, the need for a Turnaround grace has become less important. If the purpose of the grace is to simply permit the customer to turn around, a 1- or 2-minute grace may be sufficient.
A Continuous grace moves forward with each rate increment up to the maximum daily rate. If you offer a 5-minute grace and the rates are in 30-minute increments, then 16.7% of all tickets less than the all-day maximum will be underrated by the value of the increment. If these are 20-minute increments, then the Continuous grace affects 25% of all tickets by the value of the rate increment.
Central/POF terminals are programmed to permit the customer sufficient time to get from the payment station to their vehicle and then drive to the exit. If the ticket had an elapsed time of 59 minutes, it is unreasonable to expect the customer can get to their vehicle in 1 minute and drive to the exit. To compensate for the dwell time, systems typically provide a 15- to 20-minute Exit grace.
However, what if I were at 1 hour and 3 minutes and the next increment was at 2 hours? Or if I were at 5 hours and have now paid the all-day maximum? What if I stopped to use the comfort room or to get a soda from the vending machine as I journeyed back to my vehicle?
After all, I have already paid either for 57 minutes of parking (up to the 2-hour rate) or the all-day maximum. Not so, since many systems will start charging the customer again after the Exit grace has expired.
Article Abstract from July, 2009