Tuesday, June 30, 2015
Past due blues
Oh yes, the rough winter also meant many clients were not prepared for the financial implications of almost daily attention to their properties by contractors struggling to keep driveways, parking lots and walkways clear of snow and ice.
“We had a tremendous amount of snow last year,” says Stephen Summer, president and CEO of About Time Snow, “and clients were overwhelmed with bills if they aren’t on a seasonal contract and they had to bring back upcharges to their tenants. It doesn’t make the tenant happy and that’s where conflicts come into play.”
Except for the Pacific Northwest, the above normal snow, ice and cold temperatures had a national footprint and affected pretty much everybody. “This was an unusual winter and nobody got a break,” says Kevin Smith, COO of Ferrandino and Son.
Contractors were left chasing the money, never a fun task when they have already transitioned into warm season tasks of landscaping, lawn and property maintenance.
By mid-summer, Mark Krog, president of KCG Management, was still dealing with the ramifications of the challenging winter for his clients.
“Some efforts to collect are still ongoing and other clients are paying very slowly. We have a customer who has been with us for three years,” Krog says. “We never heard a complaint, but as soon as we went over our cap and had to bill the client extra we were told after the event that they were not happy with the service and did not feel that they should have to pay for it.”
The uncomfortable situation happened three times in a row and the fourth event had Krog personally going to the site and helping the crew.
“Everything went flawless,” he says. “I was not expecting a phone call and my guys said there was nothing different they were doing. Two days after the bills were sent I got the phone call and the customer stated we were late, had missed areas, and he did not feel that it was a good job. He even said there was a different truck on site and that’s probably the reason that it did not go the same way. I explained to him that the odd truck was me that I wanted to see for myself the `bad work.’ He was sort of speechless, needless to say, and we continued to do the work.”
Long story short, Krog discovered the client simply didn’t have the money to pay nor wanted to pay extra. The matter will likely end up in court and the customer removed from the client list. It’s a worst case scenario, certainly, but it happens.
Summer shies away from suing a delinquent client, but will begin the process if need be. He uses what is called a mechanic’s lien against a property, which provides him with some leverage because the lien handcuffs the property owner to some extent.
“The owner gets a notice of a lien and gets upset and hopefully the issue gets resolve,” he says. “Suing is a big headache. Occasionally, if there are no issues between ourselves and the client, we will negotiate from time to time on payment.”
Summer estimates only one percent of his clients become dangerously delinquent or unresponsive to their contractual obligations.
Snow and ice contractors have an obligation to both their employees and their vendors to pay them in a timely manner so they can supply quality work and supply product as needed in these crisis situations, says Tom Canete, owner of Canete Snow Management.
“Customers may not be aware the impact it has on a company when they do not pay in a timely manner,” he says. “So, yes, it is very frustrating on all levels.”
Summer finds dealing with clients delinquent on payments personally and professionally disturbing.
“To me, I get a sense that they are saying they don’t have a regard for your business, what you do and how you do it,” Summer says. “They are saying they want to hang on to their cash.”
Krog concurs, “Yes it can be frustrating, but through the years that we have been doing business we have come to the realization that there are very few customers that pay on time. I’m asked why some customers are put at the top of the list. Well, these are the ones who are like a clock in payment. We service all the same but some are put in front of others.”
There’s a fine line between demanding payment and wanting to keep the client happy and on their client list.
“This line is finer now than 15 years ago,” says Steven Jomides, CEO of Lawns By Yorkshire. “It is not common to be paid in 60, or even 90-plus days, but it does occur and at times from someone who may be a good client. Once budgets are hit, the client needs to scramble for a solution that not only suits you, the vendor, but themselves first.”
Okay, so how should contractors deal with clients reluctant to pay?
“Snow removal payments for clients who need snow removal must be like paying for a root canal,” John Debold, a consultant with BCA Financial Services and a past president of the New Jersey Association of Collection Agencies. “You’ve got to pay it and you don’t have really much to show for it--the pain stops. When you buy a television set at least you sit there and watch it.”
Timeliness and accuracy of billing (and a dose of communication) is what will work in contractors’ favor.
“I shout about being timely with billing because there is no set time a person tends to bill,” Debold adds. “Think about it. That Visa bill, that car payment and that electric bill are there all the time, every time, on time.”
By the second month of non-payment “red flags” go up. As to getting paid, Debold says you get more flies with honey than with vinegar.
“Be firm with a smile,” he says. “You need all your ducks in order for all your accounts so you’ll be ready for the few who default. If a debtor finds a loophole, he will crawl into it and sit there.”
Debold recounts an applicable personal story. “Some of the collection process is to appeal to a client’s good conscience and honesty as a businessman,” he says. “I was at a very wealthy man’s house for a Christmas Eve party. His wife had a phone call while she was in the kitchen. It was the landscaper. He wanted to know if the Christmas decorations he put up were working fine. Contractors should make that follow up call. When it comes time to pay the bill, clients will remember that.”
Krog says he had a “good amount” of his customers who spent well over their expected amount for snow removal this year.
“If we don’t hear responses through email or phone calls then we need to take a different approach,” he says. “Nine out of 10 times if your customer is not responding to late notices or emails or phone calls it more than likely means that they are not going to pay. When we have these situations I always like to hear from the customer that either they’re out of money or they don’t expect to pay for the services provided. In the past, I have made the assumption that they were not going to pay and put it with the lawyers for collections. Later I found out that the customer was sick for a long period and that I had just ruined a relationship.”
Krog and his staff are now always polite to their customers. “In my earlier years of doing snow I would get on the phone and lose my cool, which ended up with us not getting paid at all and leading to court proceedings. That took all the profit out of jobs. And even if you get a judgment that still does not mean that you’re going to get paid.”
Smith says spending a few dollars on a part-time employee dedicated solely to billing and accounts receivable can be a matter of being penny and pound wise.
“If you are a small contractor you are probably doing a lot of the billing yourself, all the while being out in the field doing work for clients. All of a sudden, you get behind in your billing and that means it will take longer to get paid, especially if it goes two or three months. The longer the bill takes to arrive at the client’s desk the longer it takes to get paid. It might be a good investment to pay someone in-house to take care of invoices and chase the money, even if you are a small operation. It would be money well spent if it saves the owner-operator time and worry and the employee is good at his or her task.”
Canete’s firm requests payment in a non-aggressive yet professionally assertive way. “We have a mixture of per occurrence and seasonal contracts. Seasonal contracts will obviously help to ensure that the customer is properly budgeted for the season. Our company keeps not only financial records but operational records including, but not limited to, equipment used, labor hours and snow amounts. So any information that a company can’t access internally to help their budget process, we can assist them with our record keeping.”
Constant communication with the client is vital to a respectful relationship, Summer says. In the end, having the customer see the value in your work and paying on time or close to it.
“Around Jan. 1 of this year we expected some extreme weather in the Mid-Atlantic, snow but on top of that close to zero temperatures for three or four days,” he says. “We went to the phones to let our customers know that there would be a horrible event happening and salting at those temperatures doesn’t work. In essence, we lowered their expectations. But what we did was actually go beyond their expectations and had phone calls raving about our service. If we hadn’t been pro-active and in touch with them it could have turned out miserable for us.”
Smith’s firm engages its customers often, sending invoices, then following up with phone calls on a somewhat regular basis to determine if the client has received the invoice and when his firm can expect payment.
“You make them validate your work, you engage the customer to make sure they have no questions as to what they received for their money, and also allow them to ask questions,” Smith says.
An ounce of prevention is worth a pound of cure.
“But when an asset and or property manager is looking to balance a budget, fluff is often eliminated,” Jomides says. “I would assume many managers could be thinking this way; two years ago was an average to slightly above average, last year was defiantly above average, so we are trending toward a below average cycle coming up. This thought process would steer them away from increasing snow budgets. Not to say this is for all, but if I were on their side of the fence, I may hedge toward a below average winter as well for 2014-15.”
Of course, predicting the weather months down the road is a dicey proposition
Some clients will cite property damage as a reason for negotiating a snow removal bill down. “We always take photos of the property before the winter, so any damage can be clearly seen and shown the customer if there is a complaint that our crews did it,” Summer says.
Ask questions of your customers, Krog say, including: “Will your budgets be okay?” “Will this limit the amount of payments we will receive?” “Will our payments be delayed?”
“If we don’t ask then we can only assume, and our assumptions can be completely wrong,” he says. “I would rather know I’m not going to be paid before I spend my monies on labor and material then after its already done and it will only cost me more to receive pennies on the dollar.”
Being open and in touch with customers, asking them to budget realistically, pushing seasonal contracts, meeting and exceeding expectations, following up billing with phone calls, and having someone in-house to chase the money could well make next spring and summer less stressful.
John Torsiello is a writer based in Torrington, Conn., and a frequent Snow Magazine contributor.