Prepay?

Discussion in 'Business Operations' started by godjwood, Feb 23, 2012.

  1. godjwood

    godjwood LawnSite Member
    from RI
    Posts: 137

    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!
     
  2. Big C

    Big C LawnSite Bronze Member
    Posts: 1,641

    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).
     
  3. Roger

    Roger LawnSite Fanatic
    Posts: 5,917

    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.
     
  4. FLC2000

    FLC2000 LawnSite Bronze Member
    Posts: 1,839

    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...
     
  5. godjwood

    godjwood LawnSite Member
    from RI
    Posts: 137

    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?
     
  6. godjwood

    godjwood LawnSite Member
    from RI
    Posts: 137

    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..
     
  7. DA Quality Lawn & YS

    DA Quality Lawn & YS LawnSite Fanatic
    Posts: 8,867

    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.
     
  8. FLC2000

    FLC2000 LawnSite Bronze Member
    Posts: 1,839



    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.
     
  9. NC Greenscaper

    NC Greenscaper LawnSite Senior Member
    Posts: 446

    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"
     
  10. Big C

    Big C LawnSite Bronze Member
    Posts: 1,641

    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.
     

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