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Managing Accounts Receivable

Discussion in 'Business Operations' started by DFW Area Landscaper, Dec 3, 2003.

  1. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    Well, I've just finished up my first year in the business and A/R plagues me. It's been a total disaster, in my opinion.

    Depending on how much more I manage to collect, my uncollectibles are somewhere between 3% and 7%.


    Lots of different methods for dealing with this.

    First, COD. Leave a check every week under the doormat or get skipped. If I did this, I think I'd have three huge problems. Number one, I'd waste too much time standing around waiting for customers to write me checks. Banking/deposits would take four times as much time each month. Lastly, I think it would lead to a lot of skipped cuts when it's dry or not growing very fast. VETO.

    Second, I could start requiring credit cards. This would weed out the dead beats up front. If they don't have a credit card, I wouldn't work for them. It would also improve cash flows. I've thought a lot about this method, but I just hate the thought of giving up 4% of my gross.

    Third, I could try a variation of what I've done this last year. This year, I've been charging a 2% late fee. Obviously, it isn't enough of a problem because more and more people pay late each month. I don't mind people paying late as long as I know they intend to pay. But all uncollectibles start out as past due accounts.

    What I'm thinking of doing is re-writing my service agreement to call for a $29.00 late fee AND a hefty finance charge. That's what all the big banks and gas cards do. If a customer is late the first time, they'll probably call and ask me to waive the late fee within days of receiving the invoice, which I would gladly do, but I would insist on the finance charge. I'm not a bank and I don't lend free money to my customers. Looking at it from the customer's view point, if you get a monthly bill and it's got a $29.00 late fee and a $2.00 finance charge, if you get the $29.00 late fee waived, you'll probably be happy.

    Here's what I really like about the $29.00 late fee: If they don't call to get the late fee reversed then I'll have a very strong clue that they simply don't intend to pay. I'll know exactly when I can stop service!

    Here's the next improvement I entend to make: My neighbor is selling pre-paid collection services. The smallest package he sells is $600 and it gets me 25 collections. As long as I turn the deadbeat over before they're 60 days past due, they do their collections without a percentage. If it's over 60 days, they take a percentage. What I really like about this idea is that they are able to match up names and addresses to get that deadbeat's social security number. They then put a bad mark against that deadbeat's social security number. Then guess what? If they ever decide to move, they can't rent an apartment or buy a new house until they pay me. I like that a lot. Nor can they get a home equity loan, or just about any kind of credit without first paying me what they owe!

    I would absolutely love to start getting deposits too. I just don't know how to make it work with Quickbooks. Basically, I'd like to require a deposit equal to 4X the mowing price that would be refunded after they had gone 12 months without a single late fee. If anyone has experience with this, please chime in.

    Anyway, those are my thoughts for next season. Anyone have any input?

    DFW Area Landscaper
  2. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

    Hi DFW Area Landscaper,

    Some LCO's will bill a month in advance.

    Here is a quote from Glan.

    " I know a company that does that also. In fact all his customers are monthly rate billed 1 month ahead. Any adjustments made at the end of the year.

    Not a bad concept"

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