You’ve sent that client three invoices and two reminder letters, and your assistant has called twice. But Mr. Smith still hasn’t paid his bill. You know the work was completed according to the contract, and you know he was pleased with the finished project. So why are his bills 90 days past due?
This situation is bound to happen to many, if not most, landscape contractors – a client will “stiff” you and not pay their bill. That could mean that your company is out thousands of dollars, possibly tens of thousands of dollars.
At the Illinois Landscape Contractors Association’s general membership meeting at Morton Arborteum Lisle, in October, Jerry Kane, national sales manager of Diversified Services Group, Highland Park, gave a presentation on how landscape contractors might go about collecting past due accounts. He included information on how to obtain basic credit information, how to schedule billing and when to hire a collection agency.
There are more than 6,500 collection agencies in the United States today, Kan pointed out, based on information from ACA International, Minneapolis, Minn. These agencies serviced more than $135 billion worth of delinquent consumer debt in the year 2000. This was twice the amount placed in 1990 – and the amount of delinquent debt is expected to double in the next 10 years. With this in mind, it is likely that most companies will face problems with delinquent accounts.
Get the Basic Information.
From the start, it is important to know as much about your customer as possible. Obtain basic credit information, as it can be useful if you encounter nonpaying customers. This information includes, but is not limited to, the full name of the client and his or her spouse’s name, the address, phone number, number of years at the location and place of employment.
“Except for hospitals and doctors’ offices, typical businesses don’t often get a lot of credit information about their client,” Kane said. “But information is vital for the creditor’s sake as well as a third-party collection agency. Unlike doctors’ offices, landscape contractors have an advantage because they know where the person lives, the phone number and possibly have met the husband or wife.”
Kane suggests getting detailed employment information, including the address and phone number of the place of business. This will provide additional information in case the customer leaves town.
Get it in Writing.
Provide written payment policies, a written account of the scope of work to be performed, and get a signed contract before any work is done. Change orders should also be put in writing. This should be done for construction contracts and maintenance agreements. “With many contractors, putting things in writing often gets overlooked,” Kane suggests. “For residential or commercial clients, it is important to get detailed, signed construction or maintenance proposals, signed contracts and, especially, signed change orders. Everything should be in writing and signed by the client.”
Invoicing.
With invoicing, speed and consistency are keys to success. Kane notes that a bill containing a self-addressed envelope (not stamped) tends to get paid faster than bills without convenient envelopes. The bills that get paid first or fastest are the bills that make it easier for the consumer or business to make the payment. Diversified Service Groups includes self-addressed envelopes in its notices to debtors.
Speed in invoicing is critical. Statistics show that the longer a bill remains unpaid, the less the chance it will ever be paid. For example, your customer might have lost his or her job or there may have been a death in the family. There may have been a change with other creditors. Maybe your landscaping bill isn’t the only bill on hold. Keep in mind that the mortgage or rent and the car payment typically are going to be paid first. Everything else follows, including the landscape bill. The longer a landscape contractor waits, the more likely it is that the other creditors have already hired collection agencies, and the landscape account has moved down on the priority list.
Based on studies done by the U.S. Department of Commerce, the chance of recovering unpaid accounts drops from about 95 percent in the first month to 65 percent after three months, down to less than 30 percent after six months. “The longer you wait, the less chance you have of getting paid,” Kane emphasized. “This is true for commercial as well as consumer accounts.”
Billing Sample.
Kane recommends a billing process model such as this:
This article appeared originally in January 2003 edition of The Landscape Contractor.