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.

NET30 is getting tougher for me as well and I have considered accepting credit cards for more immediate, reliable payments.

When presented with both rate structures, your honest customers will always choose the cheaper route. But what prevents a scumbag from taking the higher credit rate and then stiffing you anyway? In other words, your scheme offers reward for the honest guy, but no real punishment for those who hadn't planned on paying their bill in the first place.

As I see it, the goal is to avoid attracting those with a "why pay for it now when I can pay for it later at a higher rate" mentality. Setting tighter terms like NET10 (for new customers only) might accomplish that. Tell them that you'll relax the float to 30 days AFTER they have established a payment history with you.

How you define "payment history" is up to you: it could be based on number of invoices paid, amount or a combination of both. For example, you might decide that three on time payments of at least $200 is a worthy credit risk. Alternatively, you may decide that a total of $5,000 in billing is required--irrespective of the number of invoices submitted and paid on time.

We have a company policy that ALL new service customers are required to pay COD. No exceptions. They remain COD for the next 3 service calls. (4 total) After that, they get NET15 for 1 year. After 1 year of good payment history then they are given NET30. This policy may have cost us few customers that didn't want to pay COD, but if they didn't want to pay COD they probably wouldn't pay NET15 or NET30 either.

On Quoted jobs for equipment or cabling we require ALL customers, new or exsisting, 50% down at signing, 50% due NET30 upon completion of job. Again, this may have cost us a few customers that didn't want to pay the 50% down, but it really weeds out those that are slow or non payers. These policies have kept our write-offs at less than 1% and have given us a solid customer base of good payers.

What do you do for government accounts? Most government offices don't have cash, credit cards or cheques on hand to pay up front?

With the exception of California which I hear is paying in "funny money" I think they are a good risk for billing.

In a lot of cases though, you tell the customer this before you roll a truck and when your tech finishes, guess who isn't in the building any more?

hint hint, the check signer.

I despise no pays. I also chase no pays to the fullest extent to which I am allowed. Late fees, bugging phone calls, lists on websites for no pays, NCO Collections and finally, small claims court.

I have won 100% of no pay cases I have pursued.

oh and also, I only extend net terms to very special customers. Everyone is expected to pay as my tech leaves. someone stated maybe they lost a few customers, but these are probably customers you don't want anyway. I'd rather not send my techs to do the work than not get paid for it.

Government.. someone ALWAYS has a credit card.

Schools, they ALWAYS pay, I always extend any school terms, never a problem.

Also, I make sure to be very very clear about the payment terms when i set up the service call on the phone. Here in Houston, we don't see too many problems, but no matter where you are, there will always, always, always be some issue.

If you lose some money, don't lose too much sleep over it, certainly don't let it make your blood pressure go up! You can simply write the whole amount directly off your tax return at the end of the year as bad debt. In reality, you get the money either way.

" In reality, you get the money either way."
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Well, not really. That's just money you don't have to pay taxes on! 10-30 percent? If not getting it results in not stepping into the next bracket... 50%?

"You can simply write the whole amount directly off your tax return at the end of the year as bad debt. In reality, you get the money either way."

100 percent not true!!!!!!!!!!!!!!!
You better talk to you accountant, small business does not work like this, your accountant will explain this.

Std rate is $xxx. Net 10
30% discount for Immed payment, this is noted on the work order as payment postmarked no later than 2 days after receipt of invoice.
Of course there is play for good customer.
The discount rate is what I want to make.