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Collecting the All Important Revenue

RichieG

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I have been running a business now for 9 years and built it up from scratch. This started very locally so deals were done simply and with a handshake. We would send a confirmation email out about the deal and list the terms on here as well as the invoices each month - so people knew what the were getting.

Local Businesses ( who are our customers ) can pay quarterly by cheque or bank transfer ( and some still like cash ) or you can pay monthly by standing order ( automatic payment )

The 2 deals we offer are month by month which is more expensive. Or a deal which carries a 3 month notice period but is discounted.

When we started this payment method and were very small it all worked well. Yes a few people didn't set up the standing order and paid manually ( sometimes a bit late ) but generally bad debt was very low.

Now 9 years on and we are a bit bigger the lack of "sticking to what was agreed" ( standing order ) is bogging us down a little. A few more customers are paying late, trying to jump out of deals and bad debt has risen.

I have a few thoughts on what to do but would like a bit of advice:

1) Current Late Payers and Bad Debt: Should we write these debts off or go to a debt collection agency. Some bills are low but some are high. As we are a regional business I don't want word getting out we are a soft touch and write invoices off easily

2) Would you make sure all customers ( even if they have been with us for 9 years ) are on the correct payment scheme and aren't allowed flexi terms dictated really by themselves. The majority do pay eventually but it takes time chasing invoices. The worry is we will lose these customers

Just concerned we are looking to scale the business and if this isn't right we will hit problems down the line

Look forward to hearing from you.
 

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ZCP

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Raise rates. Get paid upfront.
 

rogainer

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Raise rates. Get paid upfront.
Our AR was always like $100k+ until we required everything to be paid upfront, started offering cc payments, and threatened to cut off service to our serious debtors. Now AR hovers around $10k. Good times.
 

CareCPA

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Raise rates. Get paid upfront.
Agreed. We get everyone on automatic monthly payments, drawn on the first of the month. If the card bounces, we don't work that month until we get paid.
 
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RichieG

RichieG

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Sep 27, 2018
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Agreed. We get everyone on automatic monthly payments, drawn on the first of the month. If the card bounces, we don't work that month until we get paid.
When we initially set our billing system up this was the plan. We didn't look into payment options and asked our UK customers to set up a standing order. ( Not sure if you have them in US or call them something else but this is when a customer goes to the bank and asks to pay somebody on a regular basis ).

In hindsight this was a mistake as we lost control of payments. Not been a disaster as 73% of our customers have done this.

Moving forward we are looking at making all payments automated by card.

Looking at using Stripe - does anybody have any experience of this company?
 

biophase

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When someone isn't paying it's for a reason.

1) Not got the money
2) Not happy with the service

How will raising rates help?
Well if they don’t have the money, they don’t get your service.

If they aren’t happy, then you fix it or they leave.

Bottom line is you are doing this to get paid.

Raising rates will help you see which customers think your service is valuable to them. You keep those and drop the rest.
 

ZCP

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When someone isn't paying it's for a reason.
1) Not got the money
2) Not happy with the service
How will raising rates help?
This is the thing ..... you fix stuff like this in the future. You are living in the past worrying about how to collect something. Put someone calling and emailing them for that. Sweep it clear from your mind. Fix your company moving forward. Go sell twice as much with the new rates / payment structure. Get LOC / investment to bridge the cashflow gap until the new sales catch up.

Went back and reread your post ...... so you are worried about losing customers that don't pay you. What? Have you ever watched Kitchen Nightmares or similar shows? Same stuff. Owner doesn't want to change. Might lose the customers that are currently putting him out of business.

Get your customers paying better rates, paying upfront, and paying the financing costs to be their bank for them. Shape up and run this like a real company.
 
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RichieG

RichieG

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This is the thing ..... you fix stuff like this in the future. You are living in the past worrying about how to collect something. Put someone calling and emailing them for that. Sweep it clear from your mind. Fix your company moving forward. Go sell twice as much with the new rates / payment structure. Get LOC / investment to bridge the cashflow gap until the new sales catch up.

Went back and reread your post ...... so you are worried about losing customers that don't pay you. What? Have you ever watched Kitchen Nightmares or similar shows? Same stuff. Owner doesn't want to change. Might lose the customers that are currently putting him out of business.

Get your customers paying better rates, paying upfront, and paying the financing costs to be their bank for them. Shape up and run this like a real company.
@ZCP Thanks for the feedback. Can see the logic. The "fear" at the back of my mind is that a lot of our customers do pa eventually but it maybe a few weeks late. If i go gung ho and say I want it on that date and they all say forget it cancel my deal then we are losing business for the sake of flexibility. ( i guess though we are doing business on their terms when they are the customer? )

On the other hand it does my head in each month chasing customers for the outstanding bills and takes so much time.

Plus as a lot of our business is regional a lot of these businesses know each other. We don't want to be seen as the company who gets the bad reputation for no flexibility
 
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RichieG

RichieG

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Sep 27, 2018
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Well if they don’t have the money, they don’t get your service.

If they aren’t happy, then you fix it or they leave.

Bottom line is you are doing this to get paid.

Raising rates will help you see which customers think your service is valuable to them. You keep those and drop the rest.
Some of the businesses we work with though are small businesses and do work/spend month to month so sometimes cash flow isn't great for them ( or so they say ).

Is it saying these are the payment terms stick by them or no deal or do you show a bit of flexibility?
 

ZCP

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is your company in the finance / banking business?

if a section of clients need flexibility and can still be profitable after paying for financing and for chasing them, then cool. the bottom line tells all.

sounds like you have an admin / process send nasty grams ........
and you start anew with the pay upfront model for new clients ..... they get a 'discount' (that you raise rates to cover) to pay upfront and autobill.......

put it in a spreadsheet. numbers make the decision.

spend more time on sales than stupid shit like this that you can hire someone to chase
 

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CareCPA

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Some of the businesses we work with though are small businesses and do work/spend month to month so sometimes cash flow isn't great for them ( or so they say ).

Is it saying these are the payment terms stick by them or no deal or do you show a bit of flexibility?
This is why I setup auto-bill on their credit card. If they are the type of business that always has their credit card maxed out, then I will probably get burned by them eventually.

It takes time to make these changes. Even after @ZCP pushed me last year, it's still a mental barrier to get over. You need to charge a rate that makes you money, and you need a billing process that is profitable. If you're spending time chasing down money, it's less time you have to bring in revenue.
 

ZCP

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You get what you tolerate.

If you are not a bank, don't be a bank.
 

Scot

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You should really look into The Pumpkin Plan The Pumpkin Plan by Mike Michalowicz

It sounds like there are some dead weight customers who are causing you to make bad decisions for your business that need to be pruned.
 

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@RichieG I run a lead gen site for small businesses who have past due customers and refer them to collection agencies who can assist in collecting on the delinquent accounts.

I am not sure if your business spans multiple states or not, but it is important if you do decide to hire a collection agency that you make sure the agency is properly licensed.

A collection agency should never charge a business upfront fees. Most reputable agencies will work on a contingency rate. Simply meaning, the collection agency keeps a % of every dollar collected. Typically, that rate is 20-40% depending on the industry, age of debt, amount, ect.

If you have accounts that you consider a "lost cause" that are too far past due and have not responded to your companies efforts to collect payment, those would be good accounts to turn over to a collection agency.

Focus on your growing your business and outsource the life sucking activity that is debt collection.

If you want to check out my site, I can refer you to an agency and you won't get spam to death. Here is link.

You can PM ME with any questions as well, I don't mind.
 

biophase

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Some of the businesses we work with though are small businesses and do work/spend month to month so sometimes cash flow isn't great for them ( or so they say ).

Is it saying these are the payment terms stick by them or no deal or do you show a bit of flexibility?
I don't know what service you provide, but at some point some of these businesses are going to stiff you. So you may be out 2-3 months of service. If that's worth the risk of keeping all the other ones that want terms then keep on doing it.

I'm sure these month to month businesses are paying their other bills on time. When the time comes, do they pay you or the power bill? You have to show them that you are as important as the power bill, or at least at a minimum, show them that you will cut them off when they don't pay.
 

AllenCrawley

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RichieG

RichieG

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I don't know what service you provide, but at some point some of these businesses are going to stiff you. So you may be out 2-3 months of service. If that's worth the risk of keeping all the other ones that want terms then keep on doing it.

I'm sure these month to month businesses are paying their other bills on time. When the time comes, do they pay you or the power bill? You have to show them that you are as important as the power bill, or at least at a minimum, show them that you will cut them off when they don't pay.
We are in the advertising industry both on and offline. We are target market specific for each area. So in our own little way we help local businesses be seen and used by local residents. Each area is about 20,000 people but businesses within a 10 mile radius can be seen within that area.

We offer 2 products. A month by month deal or a discounted price where they save money each month but have to give 3 months notice.

The problem is mainly with the latter. Firstly, when they want to stop they sometimes say stop immediately and it can get quite heated ( we say we have discounted prices for 2 years so you have to stop now and they are like no stop now ) and if they pay late ( as they pay monthly ) we can't chase 2 hard as they have 2 months left on their deal.

Had some good advice and book recommendations so looking at various options.
 

ZCP

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Sounds like you need to figure out why they are stopping.

After that, plans are prepaid. Want lower rate, pay more upfront for a longer service....

3 month notice makes no sense. What if someone put that requirement on your business?? You wouldn't like it. When you want to stop spending money, you want it now.

Maybe offer those options ..... "turn on and off as you want w/ prepaid plans!" .... let them manage their accounts. They buy days and choose which ones are on until they have no more days and need to reload? Just thinking out loud....
 

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