Managing Accounts Receivable
If you are a plumber, there are several great reasons to do residential service work.
First, there is always a need. Every city and town have a wide variety of housing, from brand new to possibly over 100 years old. The plumbing systems cannot last a lifetime, and generally the dwelling out lasts those systems. So, there is always repair and replacement work at much higher margins than new construction.
Second, payment from residential customers is Cash on Delivery of service. Just like the grocery store, or a restaurant, or your doctor, you pay at the time of service. There is no, “bill me.” Or there should not be. If you are billing residential customers, STOP! It is not necessary, nor is it a good business practice.
Set the expectations when the customer places the service call. Ask the simple question, “How will you be paying today? We accept cash, checks and all major credit cards.” You do not bill residential customers. If you are dealing with rental property, work out a payment solution with the owner by taking a credit card on the phone prior to doing the work.
Now, what happens when you do repair work or drain cleaning at a business, or restaurant? Generally, they ask you to send them a bill. Unless the business is a national company, the bookkeeper with the checkbook is probably on site. If it is a locally owned restaurant, the owner is in the business and has access to the cash, check book or a credit card. When the produce truck shows up to deliver fresh vegetables, how does he get paid? The owner takes cash from the register and pays the bill. We can be just like the produce guy, if we only ask.
We all know how to ask. Are you married, or have a significant other? If you do, you know how to ask. The worst thing anyone can tell you is NO! Usually, you are just not asking for your money.
On those occasions when you do need to send an invoice to get paid, you need a process. Here is the process I used:
Have the customer fill out a credit application before any work is done. If you do not have a credit application, just look online and I am sure you can find many examples. Actually call the credit references they list and ask what their high balance has been; do they normally pay within the terms; how many times they have been over 30 days late; and do they currently have an outstanding balance. Also, call their bank and determine if they bounce checks and is their account is good standing.
Then, unless it is a large national company, it is very common that a personal guarantee is needed from an officer of the company. If refused, I would refuse them credit.
Then, place a predetermined limit on the account. How do you determine the limit? What is your average ticket? If your average ticket is $437, then I would give a limit of about 2 times that amount; $875. I can do two basic jobs in a short period of time to determine how they pay.
If all of a sudden, they have a lot of work for you, then what plumbing company do they currently owe who has cut them off? It happens, so be cautious. If this happens, ask who their last plumber was and give them a call.
I recommend you have terms of Net 15 days from the date of the invoice. Larger companies who have a payment center in another city may need Net 30 days, but always go for a shorter term if possible. Mail the invoices quickly and if using electronics, find out who to email the invoice to for the best results. Follow up 7 days later to determine if the invoice was received and is it in line for the next check run. Many times, the correct person has not received the invoice and this will save much time in getting paid. Follow up every 7 days until the payment is received to determine the status. Don’t feel like you are going to worry them. The job is not complete until the check is in the bank. You have done the job, paid for material and labor, and you are not the bank. Keep tight controls on this process by making a person in your office the AR Champion.
Once last thing concerning Accounts Receivable. Anytime “bill to” accounts are accounting for more than 30% of your sales, you are setting yourself up for failure; failure to not be able to make payroll; failure to not pay your bills; and failure to not pay yourself – all because too much money is owed to you. That can also result in failure of your business. You are not a bank so don’t act like one!
Do you need help getting your business to the next level? That is what I do all day every day. Contact me at ThePlumbersCoach.com.
The Plumbers Coach™. Detailed personalized business coaching and training for plumbing contractors. Like us on Facebook @ThePlumbersCoach, follow us on Twitter @T_PlumbersCoach and on LinkedIn @KeithGlass1. Get your day started right with The Daily Quote on our social media pages.
Share This Post
The Plumbers Coach™
- Phone(727) 451-9160
- AddressPalm Harbor, FL 34683