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godjwood
02-23-2012, 12:11 PM
Hi Guys,

So I am making major changes to the business this year.

I have a major goal to improve cashflow and keep my A/R as low as possible or non existent. I had major problems with past due invoices last year and late payments.

I have set up credit card processing, which should help for those people that don't immediately have the cash. It will enable me to have the credit card companies finance them instead of my company.

I am also considering rolling everything into 9 monthly installments rather than bill for work done that month. I figure this will enable people to set it in billpay and forget it, rather than having to issue a check for a different amount each month. I also think it will improve cashflow as there will be no "lump sum" payments for fall cleanup and mulching.

Lastly, I am thinking about enforcing "pre-payment".

Ideally for me, pre paying would enable me to have the money in the account prior to season start for pre-season expenses and payroll.

However, I don't know how customers would react to this, as there is no benefit to them. My brother suggested that good customers, the customers you want, probably wouldnt have an issue with it.

The other thing is, I don't want to make too many changes at once, and confuse or overwhelm customers. I feel it is best to make small changes every year.

At a minimum, I was thinking I need to make those slow paying customers pre-pay, and maybe make all new customers pre-pay.

What are all your thoughts on this? Thank you!

Big C
02-23-2012, 12:22 PM
I changed to a pre-pay system starting this billing period. I sent out invoices for March on Feb. 15th. If they are not received by the 1st of March, the customer will not be added to my route for that month. I will add them as soon a payment is received. That way if they do not pay, I do not mow and I am not in the hole for work already performed. All of my good customers love it and my slow payers and monthly pain in the ass customer are questioning it (exactly as planned to weed out the pain in the asses).

Roger
02-23-2012, 12:31 PM
If it is no benefit to the customer, why would they do it?

I realize you want to stop playing "bank." But, if you insist on pre-pay for the season, they will see you as "bank." If you are having cash flow problems (not an unreasonable issue), why do you think your pre-pay plan will not be a cash flow problem for the customer?

Personally, I don't think issuing a check each month with a different amount is a problem for anybody. Who has a constant utility payment, such as electricity, gas, water, etc. Having a same amount due each month is of no added value to the customer. Varying amounts due from the household budget is commonplace. Yes, a car payment, a mortgage payment may be the same, but beyond that, not much.

You won't make anybody "do it," as in making slow payers conform to your guidelines. What leverage do you hold? If you don't do their work, there are 10 others waiting in line to take the account. One-time tasks are different, and they would be easier to handle this way.

Just because you have a cc system set up, some folks may not choose to use it. If they tell you "no," what choice do you have? Continue to extend credit and expect monthly checks, or drop them, are your options. If you say "must do," then go back to the leverage question.

FLC2000
02-23-2012, 01:10 PM
I have a couple customers that pre pay for the entire year for services. I offer them a 5% discount if its paid in full. Some do it and some dont.

The best way I have learned to deal with slow payers is not to show up. If its a mowing customer and they dont pay on time they will when their grass is a foot tall and they are having company over...

godjwood
02-23-2012, 02:43 PM
I changed to a pre-pay system starting this billing period. I sent out invoices for March on Feb. 15th. If they are not received by the 1st of March, the customer will not be added to my route for that month. I will add them as soon a payment is received. That way if they do not pay, I do not mow and I am not in the hole for work already performed. All of my good customers love it and my slow payers and monthly pain in the ass customer are questioning it (exactly as planned to weed out the pain in the asses).

Only problem that has occurred to me now, is if you stop service, you really screw yourself. Now the grass is a foot tall and you cut it for the same price as one cut?

godjwood
02-23-2012, 02:46 PM
If it is no benefit to the customer, why would they do it?

I realize you want to stop playing "bank." But, if you insist on pre-pay for the season, they will see you as "bank." If you are having cash flow problems (not an unreasonable issue), why do you think your pre-pay plan will not be a cash flow problem for the customer?

Personally, I don't think issuing a check each month with a different amount is a problem for anybody. Who has a constant utility payment, such as electricity, gas, water, etc. Having a same amount due each month is of no added value to the customer. Varying amounts due from the household budget is commonplace. Yes, a car payment, a mortgage payment may be the same, but beyond that, not much.

You won't make anybody "do it," as in making slow payers conform to your guidelines. What leverage do you hold? If you don't do their work, there are 10 others waiting in line to take the account. One-time tasks are different, and they would be easier to handle this way.

Just because you have a cc system set up, some folks may not choose to use it. If they tell you "no," what choice do you have? Continue to extend credit and expect monthly checks, or drop them, are your options. If you say "must do," then go back to the leverage question.

This is very useful input, thank you.

With some more thought,and talking with a few people, I am thinking about operating this way:

Send out invoices the first of the month PRIOR to that month's service. Due by the end of that month. That way, the customer does not actually have to pre-pay. If the customer chooses to send in a check before the end, they are actually pre-paying. If not, at least I eliminate the 1 month lag on payments.

Credit cards will be billed the last day of the month of service automatically.

However, as I type up my season renewal letter, I am thinking I don't know if I want to force people into this "installment billing". They might not all want to do this, like you say. However, if I don't do this, I have no way of knowing their month's bill prior to our service so I would not be able to implement the idea above..

DA Quality Lawn & YS
02-23-2012, 04:12 PM
You'll have to dangle a carrot to have anyone prepay the season. No one will just prepay at full price, no way. Do 3-5% off for the season.

Prepays help me A LOT starting up each year, pays for 1st round ferts supplies, advertising, etc.

FLC2000
02-23-2012, 05:58 PM
Only problem that has occurred to me now, is if you stop service, you really screw yourself. Now the grass is a foot tall and you cut it for the same price as one cut?



Not at all. They get treated like anyone else who would call up and there was grass is that tall. They get charged more. If they dont like they can go elsewhere. Im done with slow payers. Thats why Ive implemented credit cards, emailing invoices, pre paying and yes, even telling a customer to get lost.

If I can be there on time every week barring inclement weather they can pay me on time.

NC Greenscaper
02-23-2012, 06:35 PM
In most cases, your good customers are going to always pay on time. I send out invoices, have offered prepay, have easy same amount billing (year around), accept credit cards, and will even pick it up at the door. It does matter what enticement you offer, some will always pay late.
I have a late charge on my invoices also, but haven't used it because it will be a hassle keeping track of what's owed and I don't think the problem customers will pay it any attention.

As others have said, when we miss a mowing a check mysteriously appears and the phone is ringing, "When are you coming, I mailed my payment in"

Big C
02-23-2012, 08:17 PM
Only problem that has occurred to me now, is if you stop service, you really screw yourself. Now the grass is a foot tall and you cut it for the same price as one cut?

No...it is in my Terms of Service form that if the account is reinstated due to lack of payment they are subject to additional fees for excessive growth due to their lack of payment.

WheatBookkeeping
02-23-2012, 09:59 PM
Itís best to take prepayments only from customers that donít already owe you money. If there is a balance due on the customers account, and you take what is understood to be a prepayment on future work, the bookkeeping gets a little hoaky.

Also, remember to tell your bookkeeper how you want to record the prepayments you take in. In other words, youíll have to decide how you want the money reflected on your Balance Sheet. Do you want the prepay amounts to show as an increase to liabilities or do you want to reflect the prepays as a credits to account receivable. You decide then make sure your bookkeeper gets the word.

Remember prepayments are unearned income and not subject to being taxed until the work (or a portion thereof) is completed and the deposit (or a portion thereof) is transformed, on the books, into earned income.

Take care--

McFarland_Lawn_Care
02-26-2012, 05:43 PM
I'm also thinking of offering a pre-pay deal this year. Most seasons I am fine but the extreme lack of snow this winter has left me a little lower than usual. I was thinking of offering to credit their account 110% of a down payment at the beginning of the season. People that are slow to pay will be getting dropped this season. Just had a payment come in last week for August mowings! That was my last and latest outstanding invoice and you can bet we won't be on her property this season - just glad to get my money. I can't complain overall - good customers.

A-Land
02-27-2012, 12:04 AM
Your cash flow problems sound like they may go beyond how you do your billing. Perhaps you should vet clients more carefully, or perhaps your company needs to be sitting on a larger chuck of liquid cash. But that's not what you asked, so...

One strategy I don't think I've seen mentioned is same-day billing. Essentially you have the customer's payment information on file (Credit card, bank account number for ACH <Automatic clearing house - e-checks>) and bill the same day service is performed. If you have this sort of system set up with a good provider that makes it easy to enter the transactions and automatically notifies and manages your customer's information, it would help your cash flow. If a transaction doesn't go through you know right away there's an issue.

Be aware that not all customers will go for that. Elderly clients, especially, will want that "bill me" option so they can use their checkbook. You have to decide if you want to use one system across the board - and potentially lose customers, or have different options - and potentially spend extra time tending to all of them and all of their loose ends.

Also keep in mind that you are saying goodbye to 2-5% of your gross when you get into credit card billing, etc. Not to mention any transactions that don't go through.

Exact Rototilling
02-27-2012, 03:30 AM
Many of my clients pay as they go. They leave a check for each mow or hand me the check.

The rest I bill. I hate billing and want to get all on pay as you go or prepay each month and if they want to prepay the bulk of the season.

If I have to bill a price increase over last year for my added time.

Pay as you go - same rate as last year. Payment due by the 1st of the month just like paying rent. 5 days of grace. Payment not received on time bill out at the higher billing rate.

Bulk of the season prepay for 6 months of mowing roughly 24 mowing a discount maybe 5%...?

I have considered going with credit card payments but only if Iím convinced itís in my long term best interest. Even my barber said more and more of his clients pay by credit now. He believes it is due to hard times....?

If the credit card Co. are going to ding me 2-5% Iíd rather give that discount to my customers vs. all the hoops I have to jump through and added hassles etc.

Exact Rototilling
02-27-2012, 03:12 PM
It’s best to take prepayments only from customers that don’t already owe you money. If there is a balance due on the customers account, and you take what is understood to be a prepayment on future work, the bookkeeping gets a little hoaky.

Also, remember to tell your bookkeeper how you want to record the prepayments you take in. In other words, you’ll have to decide how you want the money reflected on your Balance Sheet. Do you want the prepay amounts to show as an increase to liabilities or do you want to reflect the prepays as a credits to account receivable. You decide then make sure your bookkeeper gets the word.

Remember prepayments are unearned income and not subject to being taxed until the work (or a portion thereof) is completed and the deposit (or a portion thereof) is transformed, on the books, into earned income.

Take care--
I want to avoid the Hokey factor. I never knew about the earn income angle. Glad that was brought up. My prepays will be prorated upon cancelation or termination of service so that makes sense.

This has been debated before but I have no problem giving a client a full season prepay discount of 8-10%. Say approx. 4 mowing per month from May – October for a total of 24 mowing. Each client has their own mowing calendar sheet transferred from the daily log book. Any overages on mowing or credits will be rectified in November.

Monthly pre-pays 5% off if they prepay May – October Payment due by the 1st. But just like a rent check .... I don’t bill them - they pay me automatically. They need to mail in or have their bank on auto pay. If payment is not received by the 5th .....that month will be billed out at the full rate. Any overages or extra mowing's or credit will be rectified in November.

If they insist on being billed at the end of the month they need to pay throttle full price since I hate the extra paper work. If all I have to bill is my commercial account once a month and that is it I’m a happy camper. Mission accomplished.

I don’t take credit cards so I’m NOT taking a haircut of 2%-5% on transactions on ANY transaction. So I have no problem passing a discount over to the client to reflect that and make my life easier.

Here is the catch I keep going back and forth on. I was wanting to raise rates on a number of my accounts. Am I holding client over a barrel by telling them prepay or you pay more for my services this year?

I don’t want to have this come across as a “Hey Pre-Pay or your rates go up...that could be turn off. But that is effectively what I’m doing. I am prepared for few client to walk ...that is the risk one takes with any rate increase.

I think it’s an issue of how it is worded.

Any input....?