They'll pay for that

If you haven't established a collection policy for your business, you're putting yourself at a disadvantage. You're also inconveniencing your clients. They deserve timely invoices as much as you deserve timely payments. If you bill late because you don't get around to it, invoice in arrears or after the job is done and mail invoices out at different times each month, not only are you always waiting for your money, you're also sending the wrong message to clients: “I'll send your bill when I get around to it, so feel free to pay me when you get around to it.” Building a collection policy in advance can eliminate this situation while stimulating your cash flow.

What is a good billing system?

A good billing system is designed around time. Primarily, it should reduce the time it takes you to collect money because it streamlines the process: You know when invoices are going out and when payments are due back. In other words, a good billing system is a disciplined billing system. Discipline yourself to bill in advance for next month's services. Make sure your invoice stipulates that payment for your service is due upon completion. Get these invoices into your clients' hands by the first day of the month. If you are dealing with residential customers, most of them are accustomed to receiving bills around the first of the month, and this gives them the option to pay in advance for your services, allowing you to cover your expenses for the period. If you implement this new billing system, you may get a couple of calls from clients wanting to make sure you haven't made a mistake. Simply assure them that the new billing system will make it easier for them to plan payments. You might tell them, “We have invoices that are sent abroad and to many states, which reduces our cash flow. We are now billing in advance to eliminate this problem and, remember, the payment is not due until completion.” This settles your clients' concerns and they often will sit down and write the check right away, giving you all the benefits of improved cash flow. This system should ensure that all clients have sent their payments by the due date or shortly thereafter.

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In the case of commercial customers, you may be dealing with property managers or management companies, general contractors and presidents of home owners associations. These are people who customarily will send your invoice through the payment process upon receipt of it. Normally, their process takes about 30 days and again, this should provide payment to you no later than the end of the month.

General contractors are another situation entirely. They may not provide you any upfront deposit and may pay you whenever they receive a draw from their financial institution. Be advised, it is not unusual in these situations for our services to be last in line for payment, at the mercy of the contractor's cash flow and whether he or she is over budget. When working on new projects, it is standard procedure for the contractor to file a lien on the property.

Bill early and often

You now know that you should bill for routine services a month in advance, but how should you bill for the new contract you just landed? Send the invoice when you get the approval to do the job, not when you are finished with it. You may then wait more days than you would like before collecting the money; however, many times you will be paid before you even finish the job.

What about chronic late-payers?

Late-payers absorb more of your time and money than you may think. One option is to offer them a discount for early payment. Despite losing a little profit off the top, you could end up saving yourself a lot more money in the long run — money you don't have to spend trying to chase down the payments. Some people try to justify late payments by complaining about writing multiple and small checks. They may tell you that they would rather wait for several bills to come in and make one lump payment. In these cases, ask them to make these “lump payments” in advance. Also consider honoring credit cards. You can set up a system with your clients in which you keep their charge account information on file and automatically bill the services you provide each month to their credit card. If they don't accept any of these options, sell the account or drop them — depending on how profitable they are to you. Sometimes the headaches are worth the wait!

What if you haven't received the payment?

It is a good practice to produce an accounts-receivables report no later than the fifth day of each month. My experience has proven that most of us dread collections and tiptoe around the problem. Remember, you stipulated that the payment was due upon completion, and by the end of each month, all your services have been rendered. Simply pick up the phone and call clients who have not paid. Offer a friendly reminder like this, “Mrs. Smith, this is Bill Phagan calling from Greenearth Landscaping to let you know that we have not received your payment for last month's services. If you could put that in the mail today, we'd really appreciate it.” Make a note on the report as to when you called. On the tenth day of the month following services, check the report again and make a second call if necessary. “Mrs. Smith, this is my second call regarding last month's service payment. Please mail it today. Thank you.” Now, at your discretion and at some point based on what you know about the client, you may want to discontinue services to reduce your possible losses with this customer. And don't be paranoid about losing them. You were looking for new customers when you found them, weren't you? A customer who isn't paying his or her bills is not a great loss. If they aren't paying you, why are you continuing their services? And don't send past-due notices or statements unless they ask for them. Sometimes, this is simply a delaying tactic on their part. If they tell you they've already paid for the service, ask them to forward you a copy of their cancelled check.

What if they still haven't paid?

Again, based on what you know about the customer and related issues, you must determine now how firm you will be with them. Maybe you've already discontinued their services, but they still owe you money. It could be you billed them too late or with multiple items and they want to clarify the charges. The longer you wait to follow-up with clients who haven't paid, the more the amount due grows. The more the amount due grows, the more confusing the bill will be for them and the more time you will have to spend discussing it with them. Sometimes, you may be tempted to offer these clients a “credit” for services that they really should have paid for, in hopes to collect other money they owe you. Instead, you should seek to clarify the invoices and all charges, and produce those service reports documenting the work you did for them or the agreement they signed with their approval. In doing so, you will have brought the situation to a “head,” and encouraged communication. Always seek to collect what monies are due you.

The next step is to determine your options for collection.

  • File suit. You can go to your local government building and file a suit in small claims court. This will usually cost you around $100 for claims up to $5,000. The court will summon your client to appear at a hearing in front of a judge or a mediator to resolve the dispute. The client may simply ignore the notice and not show up. In this situation, the judge or mediator normally rules in your favor and a judgment is filed against the person who owes the money. If your client does show up, the judge or mediator decides the case based on the facts presented. So, be prepared to present a well-documented case using records of works performed and invoices sent as well as documentation of follow-up phone calls to your client.

  • Lien on them. Another option you can take is to establish a lien on the property where you performed work for the client. Again, you can do this yourself at the courthouse or you can have an attorney do it for you for a fee. Filing a lien will automatically send notice to the owner but, depending on the laws in your state, you may be required to send a “notice to owner” before filing the lien. Now, the problem with a lien is that you may still not collect your debt unless the property is sold; and if there are already multiple liens on the property, you may still not collect any money.

Determining under what circumstances you can place a lien a property is subject to interpretation of the laws in your state. In most cases, you must establish the lien within a specific timeframe, maybe within 45 days after you've completed the work. Normally, it is also required that the work you did on the property constitutes an “improvement” to the property, and can include building retaining walls, adding an irrigation system, landscaping, mulch and more. You may also be able to lien the property for lawn-maintenance services, but consult an attorney to first to see whether this applies to your situation.

While speaking with your attorney, you may decide to turn the entire problem over to him or her in exchange for a legal fee or a percentage of what they collect for you. But before taking any legal action against anyone, look at the facts. If your client owes you $100 dollars and it will cost you $100 to go through the process — not to mention the time involvement on your part — you may not want to pursue it. Learn the lesson, take the loss and move on. If your possible collections are closer to $10,000 and you've got all the documentation including the signed agreement, payment terms spelled out and everything you need to prove your case, then go for it. Sometimes it becomes simply a matter of pride when you are pursing what is rightfully yours. Maybe you'd spend $5,000 to collect $2,000. Again, it's a judgment call on your part.

Also check with your attorney about reporting your client to the credit bureau, resulting in a blemish (they may already have a few) on their credit record. Having a great collection attorney to give you direction will cost you money, but it will save you money in the long run.

Back to the beginning

Disputes regarding payment are not always the client's fault. If you've been unclear with regard to payment expectations, if you haven't kept good records of work done and payments received, and if there's no uniformity to when you send out bills, you have to accept the fact that you are going to confuse clients and that you need to establish a better collection policy. Give some thought to what you told the client when you agreed to work for them. Did you set any standard in terms of payment? Did you collect a deposit for the job? Are the terms and conditions of this deal in writing and signed by the client? Do you have credit card capability in your business where they could have paid you in full if you had asked?

It is easy to lose money in the lawn-care profession. Reduce the chances of it happening to you by reviewing your collections policies and taking steps to improve them.

Bill Phagan is president of Green Industry Consulting, Inc. (Tampa, Fla.), a business operations and consulting firm for maintenance, landscape, pest-control and irrigation companies. He is the author of many Business Booster Books pertaining to the green industry. You can reach him by phone at (813) 961-2149, by e-mail at bphagan@tampabay.rr.com or through his website at www.greenindconsulting.com.

SOME COLLECTION DON'TS

  • Never threaten to file a lawsuit unless you intend to do so.

  • Don't call the customer about collection more than once per week.

  • Never tell others about this “deadbeat.”

  • Never call during non-business hours or weekends.

  • Don't yell or use foul language.

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© 2014 Penton Media Inc.

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