Are pre-payments bad?

[USA Lawn Care]

right now my customers are pre-paid month to month with a few that I mow that pay me when I show up. dpld....if you don't mind me asking....are your customers paying by check or cc or both? I believe sometime this season, we will be using a cc payment option. Might just be thru paypal....don't know yet. I'm real particular about making choices when it comes to offering this new way of paying (cc), we're checking out different rates, etc. My brother in law (my accountant extraordinaire) suggested maybe collecting for the month on the last Monday of the previous month. It's still a work in progress with decisions that need to be made by the end of Feb. anyhow....billing clients ahead of time and collecting "as we mow" has probably been the single most important way I have kept my business operating in the black with no debt.

[CHEESE2009]

Lawn care business tips

Have a plan to protect you from clients who cancel service, and request a refund. Getting money early, means you might spend it. lol. That's the only issue really...

[jymie]

Originally Posted by USA Lawn Care

right now my customers are pre-paid month to month with a few that I mow that pay me when I show up.

dpld....if you don't mind me asking....are your customers paying by check or cc or both? I believe sometime this season, we will be using a cc payment option. Might just be thru paypal....don't know yet. I'm real particular about making choices when it comes to offering this new way of paying (cc), we're checking out different rates, etc. My brother in law (my accountant extraordinaire) suggested maybe collecting for the month on the last Monday of the previous month. It's still a work in progress with decisions that need to be made by the end of Feb.


anyhow....billing clients ahead of time and collecting "as we mow" has probably been the single most important way I have kept my business operating in the black with no debt.

Check into merchantanywhere.com you can use it through a smart phone and they have a bluetooth reader/printer option also.
Plus, they can set you up for part of the year. Ex. our season around here runs from Mid April - Nov, you only get a monthly fee for the month you operate your business. In Dec you get a yearly fee of $99, and the monthly fee was $24.95 (Apr - Nov), plus any transaction fees. I am also looking into inuit payment processing. They are sending me the reader to see if it will work on my phone.

[TiedemanLLC]

I think many of you are missing my point with the pre-payments. When I am referring to the pre-payments I am not taking a week or a month in advance, I am talking about an entire year ahead of time, sometimes with me it's years in advance.

Now with the pre-payments will do have a "no refund" clause in our contract. All you can receive is credit towards services (not products).

[mark123]

To me, money is money. In advance, during service or at the end of the month is all the same.

I could see where having someone pay in advance would be a good thing if it locks them in and you can pre-order the products without worrying that they'll cancel. No refund would have to be the rule. The discounts are too steep though. I'd say 6% to save the tax or 10% tops no matter how far in advance they pay. I've not offered discounts for pre-payments but I may for the fertilizer treatments, never for mowing.

[jymie]

I had two customers last season that opted to pay the whole season ahead of time, they are contract customers. I give them the option to pay the whole year at 20% off the weekly rate. It gives me some up front capitol to work with to start the year which is a good thing.

[dpld]

Originally Posted by TiedemanLLC

I think many of you are missing my point with the pre-payments. When I am referring to the pre-payments I am not taking a week or a month in advance, I am talking about an entire year ahead of time, sometimes with me it's years in advance.

Now with the pre-payments will do have a "no refund" clause in our contract. All you can receive is credit towards services (not products).

i think beyond that everyone is not looking at the whole picture here.

for me the money i discounted represented a larger savings in the end because i offered a full service such as lawn mowing, shrub trimming, lawn treatments and mulch, etc, etc.
at one point we had 75% of 120 accounts giving me pre payment for the entire year.
well, come febuary i would have 3/4 of my revenue in my hand before i even started to work and with that money i would go to my supplier for lawn chemicals and fertilizer and i would buy and pay for every drop and granular of product i would need for the entire year.
that alone would save me 30% off that cost.
then i would go to my mulch supplier and and on average i was useing 1,200 cubic yards of mulch each year and i would pre pay in febuary for the whole year and i was getting mulch that guys were paying $18.00 per yard for $10.00 per yard.
do the math on that one, not to mention when my supplier seen me pulling in every febuary he knew it was pay day and he loved getting paid up front for that much mulch at a time of year when he was selling nothing.
not to mention when my truck pulls in to the yard to pick up, he dropped what he was doing and immediately loaded me up and i would by-pass the long line of guys waiting to get loaded which also saved me time.
guys used to get pissed and complain and his answer would be " money talks and bull**** walks " and i will do the same for you if you come here every febuary and pay me upfront for the season.

at my yard me and one of my former employee who started his own business bought a 2,000 gallon fuel cell and we even would buy our fuel in bulk.

i never had to sweat payroll and had my payroll in the bank for the whole year collecting intrest before i even had to pay out one dime in payroll.

my point is you have to think outside the box and not veiw everything with a tunnel vision and take advantage of everything you can to capitalize on it and it was a two way street for savings for me and the customer.
i would have substanial savings and i passed it down to the customer and rewarded them for pre payment and the 25% of the accounts that did not pre-pay were on the auto-pay and that saved me the trouble of having to send bills out and wait for the remainder of my money.

it is a win win for everyone.

[dpld]

Originally Posted by USA Lawn Care

right now my customers are pre-paid month to month with a few that I mow that pay me when I show up.

dpld....if you don't mind me asking....are your customers paying by check or cc or both? I believe sometime this season, we will be using a cc payment option. Might just be thru paypal....don't know yet. I'm real particular about making choices when it comes to offering this new way of paying (cc), we're checking out different rates, etc. My brother in law (my accountant extraordinaire) suggested maybe collecting for the month on the last Monday of the previous month. It's still a work in progress with decisions that need to be made by the end of Feb.


anyhow....billing clients ahead of time and collecting "as we mow" has probably been the single most important way I have kept my business operating in the black with no debt.

they do both and the people who do auto-pay use their cards because they have to have a card on file in order to do the auto-pay.

but as i mentioned in earlier posts all i do is commercial now and i bill ahead of the services so to some degree it works out as the same with some slight variations but with the commercial work the dollar amount is much greater as well as most corp's don't use credit cards to pay for expenses that large.

[TiedemanLLC]

Originally Posted by dpld

i think beyond that everyone is not looking at the whole picture here.

for me the money i discounted represented a larger savings in the end because i offered a full service such as lawn mowing, shrub trimming, lawn treatments and mulch, etc, etc.
at one point we had 75% of 120 accounts giving me pre payment for the entire year.
well, come febuary i would have 3/4 of my revenue in my hand before i even started to work and with that money i would go to my supplier for lawn chemicals and fertilizer and i would buy and pay for every drop and granular of product i would need for the entire year.
that alone would save me 30% off that cost.
then i would go to my mulch supplier and and on average i was useing 1,200 cubic yards of mulch each year and i would pre pay in febuary for the whole year and i was getting mulch that guys were paying $18.00 per yard for $10.00 per yard.
do the math on that one, not to mention when my supplier seen me pulling in every febuary he knew it was pay day and he loved getting paid up front for that much mulch at a time of year when he was selling nothing.
not to mention when my truck pulls in to the yard to pick up, he dropped what he was doing and immediately loaded me up and i would by-pass the long line of guys waiting to get loaded which also saved me time.
guys used to get pissed and complain and his answer would be " money talks and bull**** walks " and i will do the same for you if you come here every febuary and pay me upfront for the season.

at my yard me and one of my former employee who started his own business bought a 2,000 gallon fuel cell and we even would buy our fuel in bulk.

i never had to sweat payroll and had my payroll in the bank for the whole year collecting intrest before i even had to pay out one dime in payroll.

my point is you have to think outside the box and not veiw everything with a tunnel vision and take advantage of everything you can to capitalize on it and it was a two way street for savings for me and the customer.
i would have substanial savings and i passed it down to the customer and rewarded them for pre payment and the 25% of the accounts that did not pre-pay were on the auto-pay and that saved me the trouble of having to send bills out and wait for the remainder of my money.

it is a win win for everyone.

good points

[Steve]

I was waiting for someone to finally ask this question, thank you. Even though you are getting 3 years of cash pumped into your system is that three years worth of cash actually good for the long haul. It may be a short term gain, but does it actually hurt you?

What % of your total net income from a customer is profit? This needs to be known first before you can take the next step to figure if it is worthwhile offering such discounts.

Then you gotta try and figure if you are getting any discounts from your suppliers to buy in bulk.

And then you also have to account for what % of your customers pay on time and how much time you spend tracking down late payers or how much you lose from non-payment.

When I would see discussions on 10% discount for prepay of a full year I would kind of cringe because we see how crazy some of our members get at using credit cards to accept payment. That is what 3% of the sale? Now how about dealing with 10% of the sale?

At 25% yikes!

Could you get better results by billing each month ahead of time?

To figure this out, I would play with some figures on two fictitious customers and see what the results are to service. Have each customer projected out over 3 years where one prepays with a discount and another doesn't prepay.