Register free!
Search
 
     

The Green Industry's Resource Center


Click for Weather
Reply
 
Thread Tools Display Modes
  #1  
Old 12-15-2003, 10:51 AM
DFW Area Landscaper's Avatar
DFW Area Landscaper DFW Area Landscaper is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: DFW, TX
Posts: 2,118
Advance payments - Deposits - Credit Checks

I'm trying to re-write my contracts for residential for 2004. A huge goal for '04 is to reduce A/R deliquencies and especially no-pays.

I don't bill flat rate monthly. I bill a' la carte.

I can estimate how much a customer's monthly billing would be and ask that they pay that amount as an 'advance' payment. But the statements would be really weird and I would honestly expect to get a lot of phone calls about this type of billing. It just doesn't work very well with a' la carte billing.

Alternatively, I was considering a deposit. That seems kind of like an ugly word in our society, though. I anticipate that many customers may balk at this. I don't want to lose a potentially good customer over a deposit requirement. Would like to know how this has worked for other LCO's.

I was thinking that I could offer a credit app for those customers who balked. Basically, on the credit app, I'd ask them to answer questions that let me know whether or not they're judgement proof. Basically, if they've got some home equity or a decent average daily balance in their checking account or if they've got investment assets like real estate or stocks or bonds, I'd feel pretty good about extending credit.

Perhaps I should offer the credit app first. If I feel they aren't credit worthy then I would ask for the deposit. If they won't pay it, so what? I've probably just avoided mowing their lawn for free.

Anyway, I don't know if I want to go with advance payments with a' la carte billing (which I feel is really weird) or if I should go with deposits or credit apps and ask for deposits only for those who fail my credit worthiness test.

Any suggestions greatly appreciated.

Later,
DFW Area Landscaper
Reply With Quote
  #2  
Old 12-15-2003, 01:54 PM
lbmd1 lbmd1 is offline
LawnSite Senior Member
 
Join Date: Jan 2000
Location: Coastal NH
Posts: 461
DFW,
After being in biz for almost 10 years now, this past season we decided to ask our residential clients for first and last mowings prepaid for the season. Just like a landlord asks for first and last months rent, we got fed up with fronting the large outlay of payroll, expenses, costs of goods at the begining of the season when you're coming out of winter pennyless. A simple letter explaining the hardship of being a small operator blah, blah blah and having to wait till you mow 4 times, bill and wait another 2 weeks for payment adds up to alot of time working with little cash flow. We had only 1 client say something about it but over 100 clients sent in their money with not a problem. For us it worked out to almost $8000 up front at the begining of the season. We did not ask our commercial accounts or our great payers for advance. No need to be shy, it's your business and just like a sales guy, if you don't ask, they won't bite. I have the letter somewhere and I can forward it along to you if I find it. We also have a great client base, very personal with them and have had most of them for over 7-8 years solid, so they trust us. I 'll see if I can dig the letter up for you.

Mike
Reply With Quote
  #3  
Old 12-15-2003, 03:27 PM
DFW Area Landscaper's Avatar
DFW Area Landscaper DFW Area Landscaper is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: DFW, TX
Posts: 2,118
lbmd1,

Do you bill the same amount every month with your customers or do you bill a' la carte?

As for asking existing customers to pay first and last months payments, I'm not too interested in that. I'm only concerned with new customers going forward.

Thanks,
DFW Area Landscaper
Reply With Quote
  #4  
Old 12-15-2003, 04:43 PM
lbmd1 lbmd1 is offline
LawnSite Senior Member
 
Join Date: Jan 2000
Location: Coastal NH
Posts: 461
DFW,
we only bill a la carte on everything from per cut mowing to labor jobs such as pruning, cleanups, mulching. Only on our commercial props do we bill quarterly for all yearly work divided by 4 based on estimated price for all work. Up north here, it would be a hard sell to bill monthly or year round payments spread out. People want to pay for only services they receive and remember seeing performed. I was thinking about going forward with new customers that perhaps instead of quoting $50 per mowing, that I would try quoting $200 a month for 7 months. That way I would receive payments for 28 mowings balancing out hard mowing in spring(double cutting) and lite mowing in july. Other than that, most of my LCO friends were quite surprised that I even got the first\last payments up front.

Mike
Reply With Quote
  #5  
Old 12-16-2003, 02:36 PM
DFW Area Landscaper's Avatar
DFW Area Landscaper DFW Area Landscaper is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: DFW, TX
Posts: 2,118
FWIW, I think I finally finished writing my new contract for '04 today. I'm very happy with the current version. I'd post it if I could, but it's not in Word. I have scanned it to JPEG, but it's too large to post on this websight.

This contract accomplishes a lot of my goals. If anyone would like me to e-mail a JPEG file of the contract to them, shoot me an e-mail: mace@bigballsincowtown.net and let me know what you think.

I've decided to continue billing a' la carte, but I am requiring Advance Billing for Last Month. It reads as follows:

Meier's Landscape Maintenance will bill customer in advance for last month's service. The estimated average monthly billing amount of __________ must be paid before any services can be performed. The estimated monthly billing amount in no way ensures that the monthly bill will be within any specified range, as billing is performed on an a' la carte basis. Advance payments will be applied to customer's billing statement upon service termination.

Later,
DFW Area Landscaper
Reply With Quote
  #6  
Old 12-23-2003, 02:16 AM
impactlandscaping's Avatar
impactlandscaping impactlandscaping is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: Morgantown, WV
Posts: 2,335
We bill services a la carte as well, and an idea we were kicking around for 2004 is prepaid discounting. The idea would be for residentials only, and could be $ 500.-3000.00 payment at the beginning of the season, minus a discount of 5-8% for pre-paying.Would have a large chunk of operating capital in Feb.,free up some office / admin. time/ billing, and not have to worry about cash flow coming out of winter. I would think the discount would more than make up for expenses in monthly billing and office time.Also would alleviate some slow payers impeding the natural course of business.After the pre-paid amount is used up, they would be billed regular price for the remainder of the season.We also thought about the first and last payments as an option as well. Any thoughts, or does anyone currently do something similar to this?
Reply With Quote
  #7  
Old 12-26-2003, 06:05 PM
DFW Area Landscaper's Avatar
DFW Area Landscaper DFW Area Landscaper is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: DFW, TX
Posts: 2,118
If you don't have to send them a statement each month, you'll probably save about $.50 per statement. At most $6.00.

If someone has the cash to pay for the full year in advance, they're probably the type that won't pay late anyway. There are two types of people on this planet (my opinion): Those who live beyond their means and those who live within their means. Anyone who has the cash lying around in their checking account to pay for the full years' worth of service is likely someone who lives within their means. These are probably the ones who will pay you on time anyway.

It would help your cash flows early in the year, but your pay cut would be far greater than 5% on those accounts. Remember, it's 5% off your gross, not your net. Anytime you start talking about increasing or decreasing your gross, the changes to the underlying net are much more noticeable.

I considered this too. I figured this wouldn't help. The deadbeats aren't gonna take advantage of the offer.

Later,
DFW Area Landscaper

Last edited by DFW Area Landscaper; 12-26-2003 at 06:10 PM.
Reply With Quote
  #8  
Old 12-26-2003, 07:13 PM
turkp15's Avatar
turkp15 turkp15 is offline
LawnSite Member
 
Join Date: May 2003
Location: Clearwater, FL
Posts: 123
I was thinking of taking 25% from the yearly balance for a deposit. Then dividing the remanding balance by 12 they have a smaller monthly payments. ( Ex. $1,000 - 25% =$750 / 12 = $62.50 a month and $250 deposit)I dont think this wouldn't work for A La Carte.

~Jeff
__________________
93'Ford F-150
5x10 Open Trailer
48"Exmark Viking Hydro
Echo 230s Trimmer
Echo HCR-1500 Shrub Trimmer
Sthil FC-75 Edger
Homelight B/P Blower
Reply With Quote
  #9  
Old 12-29-2003, 12:06 PM
mtdman's Avatar
mtdman mtdman is offline
LawnSite Gold Member
 
Join Date: Jul 2002
Location: A2, Michigan
Posts: 3,124
I offer a Season Prepay for my customers. I figure it based on 26 weeks, which is my average season length. Then I give a 10% discount. I have averaged about $10000.00 worth of Season Prepays over the last 3 years. It's a nice chunk of change up front before the season even starts. It's based on the mowing charges, but a customer can put any other services they would like throughout the year in as well. If a customer asks for services outside the prepayment, I just bill them after completion of the service. I have yet to get a complaint about the prepayment from anyone. It's important to note that the folks that take advantage of the prepayments are those that would pay on time anyway. It usually does not deter late paying people.

As far as late paying people go, if a customer is constantly late, I will ask for a deposit that will come off the customer's last statement for the year. If they don't want to pay, adios. It's not hard to weed out the slackers.

I wouldn't bother with a credit check. Even a credit check isn't going to tell you if a client will pay on time. Many people think that a lawn service is some kind of second tier payment that they can pay late because there are few repercussions. I've had very well off clients that wouldn't think twice about paying their credit cards or mortgage late, but would pay me late. They soon found themselves looking for another LCO, and I will and have warned LCOs when taking over accounts about late paying people.

Not only that, but there are rules and laws that govern credit checking. I don't believe you can just ask any questions you'd like to determine credit worthiness. And I doubt the successfulness of a questionaire like that. Not to mention, many people might not want to bother and just go with the LCO that doesn't ask questions.
Reply With Quote
  #10  
Old 12-30-2003, 12:51 PM
DFW Area Landscaper's Avatar
DFW Area Landscaper DFW Area Landscaper is offline
LawnSite Silver Member
 
Join Date: Oct 2003
Location: DFW, TX
Posts: 2,118
MTD,

Thanks for the input. As for offering a 10% discount for annual pre-pays, I think I'll pass on that one. I don't need the cash flow. I'm one who's always lived beneath my means as opposed to beyond my means. If I do have a need for cash, I get an offer in the mail every day from credit cards offering 0% interest for a year.

I figure the 10% your giving up doesn't decrease your problem with deadbeats any because they won't be the ones who take advantage of the offer. If you need the cash, you may want to consider a cheaper form of financing. 10% is pretty steap right now. But I guess it does pretty much lock the customer in for the year, which might be worth 10%.

As for the advance payment, I have re-written my contract to allow for that. But instead of billing a month in advance or asking for a deposit, I've decided to phrase it as "last month's payment in advance". It's really just a deposit, but it doesn't have the ugly connoctations of the word "deposit". Trying to bill a month in advance with a' la carte just doesn't make sense on the customer's statement.

If they refuse to pay the last month in advance or hesitate over the issue, I will show them my advertisement in the phone book. If that doesn't do it, combined with the lettering on the side of my truck, which advertises my BS in Landscape Contracting from Oklahoma State University, I'll have a strong suspicion that they don't have enough cash in their checking account to pay for it. Either that or they're extremely mistrusting.

At that point I'll have to make a decision. I was planning to hand them a credit check form that would ask questions like:

Do you have a checking account(s)?
How long have you had your checking account(s) with the same bank?
How many checks have you bounced in your life time?
What is your estimated average daily balance on your checking account(s)?
Outside of your home equity, pension, 401K & IRA assets, do you own any investment assets?
Describe the investments and their approximate value:
Do you generally:
(a) pay your bills as they arrive
(b) pay them on a regular schedule such as once or twice a month or once a week
(c) prioritize bills by due date
What percentage of the time would you say that you pay your bills prior to the due date?
(a) 98% or higher
(b) 90 to 98%
(c) 70 to 89%
(d) less than 70%

Basically, if they'd be willing to demostrate that they have assets, I'd be willing to extend credit without the advance payment. As for asking illegal questions on the credit app, I seriously doubt anything would ever come of it, if the questions I'm asking are in fact illegal. I'm not planning on giving them a copy of the credit app unless they specifically ask for it. But it's impossible for me to tell if someone will pay me by meeting them on their front porch.

I'm sick and tired of working for free and having to work to get paid. This is a business and I just can't afford to keep extending credit to everyone on blind faith that all people are basically good. In fact, my first year in the business has taught me the opposite when it comes to americans and paying bills on time. Well over 50% of my customers have failed to pay me on time at least once.


Later,
DFW Area Landscaper
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump





Powered by vBulletin® Version 3.8.6
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
Copyright ©1998 - 2012, LawnSite.comô - Moose River Media
All times are GMT -4. The time now is 08:05 AM.

Page generated in 0.11908 seconds with 7 queries