atcomsystems.ca/forum Forums General General Telephone & Systems Information Getting people to pay: Is this a valid "stick?"

These days one of the biggest problems any small business faces is geting people to pay their bill. I personally know of several small companies that have gone under partly because of outstanding invoices with customers who themselves have folded, pulling others down with them.

The "stick" we are tempted to try is only useful for labor costs; if you are a system vendor selling equipment at a fixed price it is really of no use. We concentrate mainly on troubleshooting and repair of cabling, so our bill to a customer is pretty much all labor, except for incidental materials like the occasional jack.

The "stick" is this: When a customer asks "how much," the answer is: We have two prices. If you pay at the time of service, it is $n per hour. If you want us to bill you, it is (1.5 x $n) per hour (or even 2 x $n).

I know that many companies give a discount for paying "cash," but it is usually only 2 to 10 percent... we're talking here about an actual "multiplier."

This may sound extreme to many people, but billing (and collecting) is a HUGE expense, and if you do have to turn an invoice over to an agency, you are lucky to get even a fraction of what is owed. Just finding an agency can be a challenge these days - in these parts they are turning away work.

We haven't actually tried this yet, but soon we may. I fully expect at least half of potential customers will invite us to kindly take our tool bag and get the hell out of their office, but in that case we have probably dodged a bullet because these are likely the same people who wouldn't have paid their bill anyway (or let it go 90 days, 120 days, 6 months, 2 years...).

Has anybody tried this? Would it be unprofessional? Unreasonable? Foolish? All comments are welcome, just try to keep flames below 650 degrees F.

Note to admins: I couldn't figure out the best place for this, so I put it here. If this discussion is "not for public viewing," then please delete this post.

Jim
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Speaking from a secure undisclosed location.

Every new customer we visit requires a check or CC when we finish. They understand this before we go out.
Have not tried your idea, let us know how it works.
Ken

What I started a few years age was to offer an 5% discount on material if the customer paid in advance. I found about half of them will take advantage of the savings and I get my money up front.

To me, 2x or even 1.5x is a little extreme. Maybe put a trip charge on your first hour and offer to waive that if paid on site. Nowadays we are going to have to come up with creative ways to collect since it's becoming harder and harder. Personally I see it as theft when someone doesn't pay.

Knee jerk reaction... that's a heck of a lot of dinero! How about 25% discount for COC. (Cash On Completion) Doubt if you present a bill of less than $80.00, $20 discount would be 1 heck of a encouragement to me to pay NOW! Even a cash rebate on a CC payment! (Coercion is what it's called by the law, but good business is what I see!)

We finally started accepting credit cards last year, in addition to company checks for payment. We no longer offer open accounts to new customers. Existing customers are also being converted to payment at time of service.

Times are tough and the world has changed. A simple explanation to our customers is that this policy is required in order to avoid rate increases due to collection overhead. In addition, I believe this approach steers customers to spend within their means. We, like our suppliers, are not a bank.

Personally, I am not fond of this change in policy. However, considering today's technology offers on-line purchasing which requires advance payment, we all have to be prepared to have payment immediately available for goods and services we wish to purchase.

"Personally I see it as theft when someone doesn't pay. "

spot on, if a company owes you say $5k for a job well done, whats the difference from walking into a bank and robbing them of $5k ???

Big business like Insurance, Health Insurance, Financials privately swap info on customers and create private blacklists......

Interconnects like us have nothing like this, when we find out its normally too late.

Std rates are $xxx. Std rates are billed net 30.
there is a discount for net 10, a bigger discount for COD. Prices apply to all equipment also.
Good customers I bill and give the discount.

Are you planning on cutting your current rate in half or doubling your current rate?

I think the idea has merit but your percentages are way too big ..... if you cut your rate in half (or dramtically) it will defeat the purpose since you won't be making much money ... if you raise your "credit" rate dramtically you will lose customers.

Something like 10 - 15% may be more realistic.

upsateny asked:
I realized after I posted the question that I never clarified that. The "$n/hr" in the above example would be our real price, the "credit" price would then be subjected to the multiplier. The ($n x 2) was an extreme example (can you sense my frustration?), you are correct in that it is not realistic at all.

I guess what I was really proposing is to simply refuse to give net 30 days terms to customers anymore, and as some of the replies above have indicated, this is now becoming more common. Of course, if everybody paid their bill within 30 days, we wouldn't even be having this conversation. I think I can speak for everyone when I say that we all got into the business to install and service communications systems, and providing low- or no-interest long term loans to other businesses was not supposed to be part of the bargain. Nor did we intend to become charitable foundations that give "grants."

I suppose the reason I was hesitant to refuse to bill customers is because it could be seen as reeking of "trunk slammer." You know, the guy who insists on being paid under the table in cash, small bills only and no receipt. And you have to meet him in an empty parking lot at midnight to do the deal. The fact that some of the replies above cited a company policy of payment at the time of service is reassuring to me, it sounds like it is an acceptable policy for a reputable business. Heck, most doctor's and dentist's offices have that policy, and nobody accuses them of being "trunk slammers." Well, except maybe that doctor on "The Simpsons."

Jim
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Speaking from a secure undisclosed location.