Stop waiting for the check to arrive in the mail. It won’t. But tweaking your collections process to include credit card auto-pay could give your company the cash infusion you already earned but haven’t collected.
You’re not the bank. But it sure does feel like it these days, with customers stringing out payments 60 or 90 days, or much longer. Phone calls go to voicemail. Statements seem to evaporate along with the junk mail — “Oh, we never received the invoice in the mail.” Fancy that. And perhaps the most frustrating aspect of it all — aside from not getting paid — is a consumer attitude shift about paying service bills.
“Years ago, people didn’t want to say, ‘I can’t afford it,’ but now people seem to utilize the economy as a way to drag out payment,” says Court Parker, COO of Bug Busters in Atlanta, Ga. “Before, owing money was embarrassing to people.” Not anymore, he says.
Now, there’s almost a sense of entitlement on the part of consumers, who seem to think they should decide if and when to pay. Of course, we’re not talking about all clients — but since 2008, keeping accounts receivable under control has been a real challenge for businesses in all industries. And collections are a perennial problem for pest management professionals.
“If we go back four or five years ago, our collections were really high and that was causing cash flow problems on our end,” says Joe Felegi, owner of Critter Control in West Palm Beach, Fla. Commercial customers especially were pushing payments out 120 days and longer. “We were really struggling,” he says.
So Felegi, and other pest control companies including Bug Busters and Arizona Pest Control, based in Tucson, began to take plastic. Credit cards enable collections conveniences such as auto-pay and pre-billing. And companies that keep clients’ credit card numbers on file can rest assured that they will get compensated for their service.
“Everyone has to give us a credit card number now,” says Bruce Tennenbaum of Arizona Pest Control, relating that this is part of the protocol for new sales: collecting the client’s name, address, email and credit card number to keep on file. “That has helped our collections process tremendously,” Tennenbaum says, reporting that he does not have any accounts due past 90 days. “I don’t want to have any more accounts receivable problems in this economy,” he says simply.
Acting like the bank and allowing customers to use you by not paying on time can shackle your growth. You’ll have less cash on hand to reinvest in the business. Even making payroll can become a problem depending on how bad those receivables look.
The key to collections is to establish a process, engage employees so they become part of the invoicing dialogue, and follow up early and often.
Crack Down on Collections. The longer a client holds on to an invoice without paying it, the less likely you are to collect. “A debit balance usually ends up turning into a cancellation, so that’s lost revenue,” Parker says. “We can bring in new sales all day long, but if we can’t stop what’s going out the back end, then we are in trouble. And accounts receivables are the most important part of that.”
Bug Busters expects customers to pay at the time of service. But Parker realizes that doesn’t always happen. Ideally, the company has a client’s credit card on file along with permission to place the charge following the service call. Clients who elect quarterly service are billed monthly for the fee via credit card auto-pay.
“If an account is charged $90 per quarter, we bill the credit card $30 each month,” Parker explains. “That fee makes sense to people — it’s the same as a loaf of bread, eggs, milk and a few other items at the grocery store now. So it’s an easier bill to handle [than the lump sum].”
Ready. Set. Collect.
If you want to collect, you need a process. Otherwise, daily business tasks will always take priority over making those dreaded phone calls to ask for money. John Doucette, principal of Receivables Solutions Services, Cleveland, Ohio, suggests asking these questions if you want to improve collections.
Who does collections? Assign the tasks of following up on past-due invoices to someone at the company, or enlist in an outsourced solution if you need a hand.
What are your payment expectations? You set the terms and make sure clients understand the rules.
Where do you store collection notes? Keep records of collections contacts with customers along with supporting information, such as invoice copies, proof of service, etc.
When do you escalate an account? “You need to establish and follow some simple rules that define when to escalate to the next level, including referral to third-party collections,” Doucette says.
Why haven’t you been paid? “You must understand why you have not been paid on time in order to collect effectively,” Doucette says. There are customers who can’t pay — and customers who won’t pay. Doucette suggests a payment plan for the “can’t pay” clients, and perhaps a third-party collections effort for the “won’t pay” camp.
Monthly billing on some accounts also provides steady income to Bug Busters so the firm can try to avoid those cash flow peaks and valleys. Of course, not everyone wants to pay this way. And that’s when the collections process is necessary.
At Bug Busters, an invoice is sent on the seventh day following service. The invoice requests payment within 28 days. If no payment is received by then, a statement is mailed with a $5 billing fee attached to it. Between days 14 and 28, Bug Busters makes a phone call to the client. If there’s still no check in the mail by 42 days, another phone call is placed to the client. Meanwhile, the client is cut off from getting the next service and technicians are alerted not to call on the customer.
Clients should not be allowed to run a tab, and Parker is adamant about stopping service after a single unpaid service because collecting double is even less likely to happen.
“If our PMPs had to do the service, that means we generated the work order, which takes time,” Parker says. “Then we scheduled the visit and paid for a vehicle to drive to the property — that costs money. We utilized equipment on the job and paid a technician for his or her labor. So, I’ve spent money on all of this and I’m not getting anything in return. And the likelihood of a client paying $180 for two services is a whole lot slimmer than collecting $90.”
After 56 days, Bug Busters sends the past-due account to a second party collections agency, which takes a softer customer service-oriented approach using letters and phone calls. Then at 63 days, the delinquent invoice is sent to third-party collections. “That is when you are talking about collectors who are a little bit ruthless when they call and ask for the money,” Parker says.
At that point, who cares if the customer quits.
In fact, if Felegi suspects that a customer might not pay — if they’re hesitant to hand over a credit card number, for example. “We will walk away,” he says. “If they can’t pay for the service upfront or give us a credit card then we’ll turn down the job.”
Since taking credit cards, Critter Control has reduced its accounts receivable to 20 to 30 percent past-due. Between 80 and 90 percent of its pest control customers pay by credit card, and about half of customers who buy wildlife services pay on plastic. On a given day, Felegi says about 70 percent of customers’ invoices are fewer than 30 days old, and about 10 percent are 30 to 60 days. Five percent of accounts are past due 60 to 90 days. “So, we are not looking bad at all,” he sums up.
Felegi says that credit card payment plans helped his business tremendously when the economy fell flat in 2008 and the years immediately after. Not only did customers stop paying on time, new clients didn’t want to sign on for services. So by instituting credit card auto-pay and allowing clients to take on smaller payment “bites” each month rather than paying in a lump sum, the firm was able to attract new business. “If times were tough, we’d put the client on a payment plan and they’d sign a credit card authorization form,” Felegi says. “Then, once a month we would charge the credit card the amount that they authorized.”
A Collective Effort. Arizona Pest Control sent letters to its clients three years ago announcing its new credit card payment program. Clients could choose to file a card number with the firm and save 5 percent on services, or they could pay online. If they chose not to pay by credit card, a $5 billing fee would be assessed.
Some customers jumped right on board and were happy to hand over a card number. Others who had been using the company’s services for years were not too keen on the plastic “option.” Converting existing customers to a credit card pay system is challenging, Tennenbaum says. But after a few years, about 25 percent of customers pay by credit card. Their accounts are automatically charged after the time of service. Meanwhile, 35 percent of customers pay at the time of service. That leaves the other 40 percent, and Tennenbaum is working to get these people on board with paying on plastic.
“Technicians play a big role in that process,” Tennenbaum says. Initially, Arizona Pest Control offered technicians a 1 percent commission on all accounts they signed up for credit card auto-pay. Along with that incentive, the company sent letters to customers and constantly marketed the credit card pay option in company e-newsletters, on invoices and other communications.
Switching clients to credit card pay has been a team effort at Arizona Pest Control. The same is true at Bug Busters, where PMPs make phone calls to customers who are late on payment. “They call accounts that owe money before the next service — they don’t want to miss servicing the account because that’s lost revenue,” Parker says. “Sometimes, a client will pay more attention to a PMP than office personnel because they have that relationship already.”
The goal at Bug Busters is to keep accounts receivable lower than 30 percent, and technicians were incentivized to help the firm reach this target.
Parker says it’s his job to get everyone on board with the company’s collection procedures. “If we have 86 percent of customers paying by credit card, the question is, where is that other 13 percent?” Parker relates. “And, if a PMP is out at a person’s home and gets that customer’s signature after service, why did he not collect money that was due? Or, if we send out a statement and invoice but do a callback at an account that still owes us money, why did we not collect during the callback?”
The reason why credit card payment is so effective is, aside from skipping over these labor-intensive collections steps, those who pay with plastic tend to stay committed to the pest control firm. “I find that by having a credit card on file or having clients pay in advance, our cancellation rates go way down,” Tennenbaum says.
Of course, by nature, collections are a work in progress. But credit card payment is shortening the time between service and pay to net zero for firms that institute a policy. “My advice is, make sure you get a credit card upfront or a check at the time of service, and don’t be afraid to cut a customer loose after 60 days,” Tennenbaum says.
In the next five years or so, he expects that paying by credit card will be an option that all of his clients will elect. “It’s like the phone book,” he says, comparing clients who insist on still writing checks. “How many people use the phone book anymore? We’re not even in the phone book today.”
Mobile pay—whether by credit card or online — is the way of the future. “Collections are definitely better now,” Felegi says. “And, we focus on it daily.”
The author is a frequent contributor to PCT magazine. She can be reached at email@example.com.