You don’t have to be a tough guy to collect your money.
If your accounts receivables (AR) are getting dusty and your cash flow is drying up, it’s probably way past time to tend to invoices that just aren’t getting paid. You sell the work, produce it at a profit and your backlog is fat, thanks to referrals.
You’re busy. But if you aren’t collecting, you’re putting your business in jeopardy. And the longer you wait to “ping” your past-due clients and remind them about the money they owe, the less likely you are to collect.
This month, Lawn & Landscape spoke with three companies that share the collections strategies that keep their AR under control.
Relationships pay off
Project deposits and humble discounts keep collections in order at Nebraska Nursery & Color Gardens in Lincoln, Neb. Manager Angie Vandersnick asks for one-third down on projects – some pay up to half, and others will fork over the fee for an entire estimate, but that’s mainly for designs-only that are sold as if they were any other product in the retail store.
“"I'm not a bank," Vandersnick says. "And I don't feel that I should be carrying peoples' purchases."
At Color Gardens, collections have not been a major issue because Vandersnick focuses on keeping open communication with all clients for all projects. Most of her work is residential design/build, and her service business is based on collaborations with clients and not recurring revenue such as weekly mowing where she admits it would be harder to develop such a personal relationship because of client volume and the nature of the work.
Though, Vandersnick says Color Gardens sees a range of customers with different attitudes toward spending (and paying). Those who drop into the retail store may be shopping around and comparing prices. If customers choose to buy a design from the retail store – Color Gardens provides designs-to-go – then the fee is due at checkout.
For clients who have Color Gardens bid on a design/build project, Vandersnick will encourage the prospect to visit the retail store to review the plan. That additional face-to-face interaction in a retail environment goes a long way toward securing a deposit. That’s when the money-down “ask” occurs.
The remainder of funds is collected upon project completion. Vandersnick says a property tour with the client goes a long way toward ensuring total client satisfaction (and executing Part II of “the ask”).
“You walk through the project with the client, and if they are satisfied, there is no problem with them paying,” Vandersnick says. Of course, it’s not easy for every business owner to have that money conversation. “Especially when you work with a small business and individual clients, they tend to be your friends,” Vandersnick relates. “Therefore, having the deposit upfront helps out so you aren’t asking for that total lump sum at the end.”
Meanwhile, Vandersnick is hip to the ultimate consumer “like” these days: deals, deals, deals. “We are an incentive-based society,” she says, speaking as a business owner and mother of children who are being raised in today’s world of rewards. She applies these social norms to her business and appeals to customers. Vandersnick might offer a 1 or 2 percent discount to customers who pay cash for plants that are on sale.
But those plants must be paid for within 10 days, or the discount is forfeited. “That’s a little incentive for them to pay on time, ahead of time,” she says.
Kill with kindness
Commercial clients have sat down with Bruce Birdsong, CEO of Precision Landscape Management in Dallas, and laid out the real-life terms of payment. Sometimes clients will process payment in less than two weeks. Often it’s 30 days. Other customers are upfront about longer pay cycles of 45 to 60 days. As long as Birdsong knows the true story, he can work his business without falling into a cash flow crunch.
“Generally, our clients have been forthcoming and told us their situations if it will take longer for them to process our invoices and get them paid,” says Birdsong, who says the collections process is a game of balance. “You’ll have those clients you pick up that pay 45 to 60 days, and some that pay 10 to 14 days.”
What’s important is that an honest discussion precedes any lagging payment terms – and that there is, indeed, a balance. If every customer wanted to pay in 90-or-so days, then there’d be problems. At Precision Landscape, a dedicated employee, who previously worked as a commercial property manager, handles all of the company’s collections while working from home.
“She goes into our system and starts contacting clients after 45 days,” Birdsong says. “At that point, we’ll send out another invoice, email them and have some dialogue with the property manager to see where things sit.”
After 60 days, a customer service rep at Precision gets involved and contacts the customer. This usually prompts payment. “Being in contact with clients and understanding their situations helps tremendously,” Birdsong says, noting that the “softer” approach to collecting includes leveling with customers to find out what pains they are experiencing that could be delaying payment. “You are always walking a fine line between ‘just checking’ with them about payment and being overly aggressive.”
Birdsong has never sent a client to a collections agency because “the aggressive nature of a collections agency is not somewhere I want to go,” but he has pursued way past-due accounts in small claims court.
Precision Landscape took two clients to small claims court last year and won both courses. “We generally sit down with the client first, then we send a demand letter to lay out the terms, trying to be as nice as we can and working with them,” Birdsong says.
He says usually if a claim is filed, the client will pay within a few days. And, he emphasizes, taking an invoice to this level is really the exception and happens only when a payment is significant and months past due. In one case, Birdsong placed liens on two commercial properties.
The cost is mostly time (he probably paid less than $200 for the process, he estimates). “You are out your time, which is the most expensive part of it.” But, he adds, “If and when the client sells the properties, you will collect your money.”
These are extreme cases. And generally speaking, collections have been improving and are not a major concern because of the open communication and constant contact between Precision Landscape and property managers.
And, if payment is lagging, Precision keeps the conversation light at first because, “It’s a small world in the real estate industry (that we serve) and people know each other.”
Skin in the game
Roughly $1.6 million per month is invoiced every month at Yard-Nique, and a quick look at the latest AR report shows that just $76 is over 90 days. Collections at Yard-Nique are an efficient, relationship-driven process where Jenny Moore, director of AR, practices persistency and diligence.
“AR is one of the most important jobs in the company, so you have to find the right person with the skills matched for the job, pay them well and give them an incentive in addition to their salary,” says Bill DuMont, CFO. When Moore joined the team at Yard-Nique, she personally met with key personnel of large accounts – those that are billed more than $10,000 per month. DuMont says: “We established a face-to-face relationship and they went through their processes so we could understand what they have to go through to pay us.”
After establishing a rapport during a personal meeting, Moore could send follow-up emails inquiring about past-due accounts without concern that her communications would be brushed aside. Meanwhile, Moore runs an AR report every week and circles any account that exceeds 30 days. “I send out an email or letter to whoever owes the money every week, and I usually a get pretty good response right away,” she says.
DuMont says no more than five customers were sent to collections this year. Before an account reaches this last resort, Moore has sent multiple letters and followed up with phone calls. “I send a reminder letter after 30 days, then if I don’t’ hear back within two weeks, I send a second reminder, and sometimes a third after that,” Moore says. “I include a response date, and if they don’t respond in that time, we alert the client we will send the account to collections.”
Again, that is a rare occasion. The one lesson Yard-Nique did learn about the importance of understanding clients’ payment processes occurred when a builder client asked members of the Yard-Nique staff to perform extra jobs on a project, which they did. The client was billed, but accounts payable would not cut a check because there was no purchase order for that additional work. “We do not do any work without a PO now,” DuMont says.
A big part of collections success at Yard-Nique is due to a company-wide incentive program called “Skin in the Game.” Moore is incentivized to meet collections goals in order to receive a bonus. Her objectives include keeping AR in line by ensuring that no more than three percent of accounts exceed 90 days, and no more than five percent exceed 60 to 90 days. Currently, the 90-day account aging is only at 0.001 percent, and 60 to 90 day aging is at 2.5 percent. DuMont says: “The key is incentive.”