Advance payments - Deposits - Credit Checks

Discussion in 'Business Operations' started by DFW Area Landscaper, Dec 15, 2003.

  1. mtdman

    mtdman LawnSite Gold Member
    Messages: 3,143

    I honestly don't have that much problem with late payers. Like I said, it's not too hard to weed them out. I never let people get that far behind in paying before I cut off service. I think that in the last 2 years, I've had to cut maybe 3 people for nonpayment. And one of those I ended up getting all my money from anyway. You just have to be vigilent. That seems like a huge expense of time and effort with that questionaire. Even people who demonstrate assets aren't necessarily going to pay on time. And like I said, many people will just not bother and go with an LCO that doesn't require all that personal information. I certainly wouldn't provide it.

    That 50% number seems really high. On average, I have 90% of my money back in 15 days, the other 10% back by the end of the month. If people are not paying on time that much, you need to provide incentives to pay quicker. Late fees, requiring deposits for frequent late pays, suspending service, etc. As long as they think they can get away with it, they will.

    And that 10% discount isn't really that steep. When you figure that I get the most of the money at least 6 months in advance for me to sit on, and I don't have to bother with billing every month those that prepay. I've decreased my time spent billing by half since I started, and decreased the money I spend on sending out bills. Not to mention, I don't lose money due to dry weather. Although the season is usually 26 weeks, invariably there will be dry times that I don't do mowing for customers, and wouldn't be able to charge them. This way I get to charge them for all 26 weeks whether I mow or not.

    Besides which, it's nice to get a big hunk of money upfront before the season even starts, and it sure feels good to have that $10,000 sitting in the bank.
  2. mtdman

    mtdman LawnSite Gold Member
    Messages: 3,143

    And to add a bit here, when I do snow I require a deposit of $250 before the season starts. I keep half of that no matter if I do the work or not. I had a couple of slow seasons with little snow and little income and that had to change. It's a way to insure I make a minimum of income. When I started it 2 years ago, I thought for sure none of my customers would go for it. But yet, almost all of my previous snow customers paid the deposit and I've yet to hear a complaint about it. The point is, often you don't know if a policy will be successful until you try it.

    I don't require it for mowing because I know I'm going to make money there. If I have problems with late payers, which is seldomly, I ask for a deposit.

  3. DFW Area Landscaper

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

    ++++That 50% number seems really high. On average, I have 90% of my money back in 15 days, the other 10% back by the end of the month++++

    Yup. I've got enormous problems with A/R. Of the customers I had in 2003, 45.9% of them paid me late at least one time this summer. And some of those didn't sign up until Sept, Oct & Nov...I think this distorts the truth a little. Of the customers who had my service for six months or more, 56.5% paid me late at least once. And I used a 30 day due date! My late fee was only 2% per month. I've already sued one guy and it looks like I may have to sue three more.

    Going forward, all new customers will be asked to pay last month's service up front. I finally figured out how to set a 23 day due date in Quickbooks, so I'll use that going forward. It's in my contract too. I will also be charging a $29.00 late fee and a 2% per month finance charge. From here on out, if a new customer doesn't pay or call to complain about the late fee before the third cut, they'll be suspended. In other words, after I send them the statement with the $29 late fee, I'll cut two more times. If I haven't heard from them at that point, I'll leave a note on the door on the day the third cut is scheduled telling them that I can't cut til I get a check.

    I just think I was too much of a "mr nice guy" in '03. And too trusting. People are prioritizing their bills and my late fee is so low I go to the bottom of the stack. Rest assured, they're paying their mortgage and credit card minimums on time.

    New customers in '04 aren't going to have it so easy.

    As for the questionaire, it's only for people who balk at the last month up front. I shouldn't have to use it very often. But if they're balking at the first month up front, it could be that there's a reason for it. I mean, if someone doesn't have $125 in their checking account, I don't want them owing me money anyway.

    I'll let you know how it works out this spring.

    DFW Area Landscaper
  4. mtdman

    mtdman LawnSite Gold Member
    Messages: 3,143

    If they balk at the last month up front, walk away. Explaining the situation before hand, and giving ample time to come up with the deposit would help to make more people comply. Those that don't have the $$ to pay it, in general aren't going to be the best monthly payers either. The one thing I have never been afraid to do is say 'no thanks'. What's the point of working for someone if they aren't going to pay?

    My due date is the 15th of the month. If they haven't paid by the 30th, I call. If I get no response, I stop mowing. If it happens a lot, I ask for a deposit or can them. This happens rarely, though.

    If a customer is a couple days late, I try not to be a pain. I certainly lose track of time and have paid my bills late before. Usually a reminder helps. It's the folks that go over 15 days that make me upset the most.

    The longer I have been in business, the less this has become a problem for me. Whether it's because I have a nice stable of veteran customers that pay on time, or I just figured out how to weed late payers out, I dunno. But I do remember having much more problem when I was newer.

    It's a disappointing fact that we have to deal with in this business, people seem to think the lawn care bill is less important than all others. The folks that have the money but don't take us seriously can be dealt with. It's the people that have limited means and put off paying the bill because they don't have the money that we all have to look out for.

    Good luck!

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