Pre Pay Programs???

Discussion in 'Business Operations' started by Trinity Lawn Care LLC, Dec 29, 2006.

  1. Trinity Lawn Care  LLC

    Trinity Lawn Care LLC LawnSite Senior Member
    from NJ
    Messages: 946

    We have never used a prepay program. For those of you that do use them I have a couple of (probably silly) questions for you folks.

    1. Do you offer them discounts for prepaying?

    2. If you offer discounts and they cancel before the end of the year do they still get the discounted price for services performed or do you bill them according to the normal rate and refund the rest?

    3. How does it work with state sales and use tax? Do you pay sales tax on the whole thing at once if they prepay? Then if they cancel and you refund a portion of their money you have already paid tax on that. Here in NJ that is 7%.

    I was thinking about offering this as an option next year, but I want to make sure that all bases are covered.

  2. yardmanlee

    yardmanlee LawnSite Senior Member
    Messages: 898

    1. I offer a 10% discount if paid before march 15 (start up money)
    2. I only had one customer that ended up moving half way through the season (job transfer) I ask if she wanted a refund which I planned on givivng, But she said just transfer it to the new owner of the home
    3. I dont charge sales tax on my services (adjust my price accordinly )
  3. kozmo

    kozmo LawnSite Member
    Messages: 70

    That is a great idea helps cash flow in the winter helps eliminate collections although i would not give up 10% that is to much. how about a free service or we use 5% as discount.
  4. yardmanlee

    yardmanlee LawnSite Senior Member
    Messages: 898

    the 10% usually averages 3 cuts and I can make that up w/ other jobs on the property plus they would be willing to spend more on mulching, pruning, planting and other things,
  5. Tn Lawn Man

    Tn Lawn Man LawnSite Senior Member
    Messages: 479

    I have not had good success with prepays. Although, I did not do a whole year only monthly.
  6. Damian

    Damian LawnSite Member
    Messages: 242

    We are discussing trying prepays here as well and a couple of the questions asked here had not occurred to me, specifically, the part about sales taxes.

    I guess it varies state to state, but I recall reading on this site someone saying that they don't charge sales tax, they just collect it for the state, meaning, I guess, that depending on the circumstances. there are times you don't have to pay quarterly taxes and other times that you do.
  7. Trinity Lawn Care  LLC

    Trinity Lawn Care LLC LawnSite Senior Member
    from NJ
    Messages: 946

    In NJ, the only time that I can think of that we do not charge state sales tax is for property capital improvements. Any maintenance service work the state expects their share. So, whether some one charges the sales tax: price + sales tax, or whether they build the sales tax into the price either way we are responsible for collecting that for the state. Looking at it from that perpective. If someone prepays you $1,000 for the season here the tax on that would be $70. If half way through the season they cancel and you return $500 to them their tax for services rendered would only be $35. whether or not they have paid $1,000 + tax equaling $1,070 or you have told them that the price is $1,070 they would expect a refund of $535.

    Maybe I am just misunderstanding something and I am making this more difficult then I need too. If I have already paid that $70 to the state is it kind of like "sorry that money went to the state, I can not refund that" or is it our responsibility to refund that and just take the hit. Or do you simply pay a portion of it each quarter equivalent to services rendered until service is complete(if what I said made any sense) instead of all at once. Maybe this is question for our accountant.

    I would like for us to offer this though.
  8. Edgewater

    Edgewater LawnSite Senior Member
    Messages: 457

    The way it works for us separates cash flow and revenue.

    If a lawn is $100.00 per month plus taxes for 7 months that is $700 plus tax. That come to 797.65 Provincial and federal tax in. That money goes into my account (cash flow). Then as we do the work, I make invoices for each month 100.00 plus tax. Only as I bill the 100.00 plus tax, only then do I record the revenue and taxes collected and remit the tax money and recognize the sale. Until the work is billed, the money is in the bank and a short term liability.

    Hope that helps
  9. Trinity Lawn Care  LLC

    Trinity Lawn Care LLC LawnSite Senior Member
    from NJ
    Messages: 946

    That does actually thanks...
  10. Az Gardener

    Az Gardener LawnSite Gold Member
    Messages: 3,899

    I have done pre pays from almost day one.


    On the 27th of Dec. I sent out January bills plus Dec. extras like fertilizer and light bulbs etc. With a little luck by the 15th of Jan. I will have all the checks in. If not by the 21st I can start making calls and not be too far behind.

    I give no discounts for this, its just the way I do business. I have only had it cost me an account one time and he was a building contractor whom I 'm pretty sure would have stiffed me or at least kept me busy chasing money.

    On larger time and material accounts I get a deposit equal to what I estimate to be an average months bill. It just sits in my bank account to pay the final months bill whenever that occurs.

    In AZ there is no tax on services, just materials used like bulbs and fertilizer.

    Just keep in mind there are 4.3 weeks in a month when calculating the monthly rate.

    Pre bill, make it the industry standard.

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