Photo credit: Natee Meepian
Cash flow is the lifeblood of your business. Without a regular flow of money into your business, you could be forced to shut down operations. Good cash flow is more important than the length of your customer list, number of Facebook likes or any ratings and reviews. In order to grow and thrive, your business needs cash to pay for business expenses, taxes and self-employed you. Cash you collect from customers is your business reality.
I learned this lesson the hard way. Before I cleaned houses, I owned a corporate gift basket business. The most crazy making part about that business was getting paid. Even though that business had a merchant account and accepted credit card payments, many corporate customers insisted on purchase orders with Net 30 terms (meaning they had thirty days from the invoice date to make payment).
Customers were often late with payments. Thirty days stretched into forty-five or sixty days. I tried not to make collections calls before thirty-five days (just in case the check was in the mail). When I called, my company contacts often handed me off to the accounts payable department. From that department, I heard a variety of excuses and dodges, including:
• the paperwork was misplaced
• they are waiting for someone higher up to sign off on the payment
• the check was just mailed (oh no, more waiting!)
• the dog ate my homework (no, just kidding)
In one attempt to speed up the payment cycle, I offered a five percent discount for early payment. After that, some customers paid me on the 29th day and took the discount.
One past due customer gave me weeks of excuses during repeated collection calls. One morning, I literally planted myself in their office reception area. I asked to speak to my company contact person. When she came to the reception area, I told her I would remain in their office until I got paid. I sat there four hours and finally got paid in full by check. I went to that customer’s bank branch to cash the check that same day to make sure I received full payment. In cash. I wasn’t taking any chances.
When I decided to make a career switch, I knew I would concentrate on residential cleaning and there would be no payment delays. No prepay, no clean was my very first policy. It is also the first item on the Customer Agreement all new customers sign. I make sure new customers are very clear about my policies. Especially the one about paying before cleaning.
Add A Trip Fee
In the beginning, if payment was not present, I would leave a “notice to reschedule due to non-payment” card on the kitchen counter and leave. Then I would call the customer later that day to reschedule their appointment.
A few years later, I added a trip fee of 50% of the cleaning fee if payment was not present. The trip fee helped cover the time, effort and gas needed just to get to the customer’s door. Customers have to pay the trip fee (plus their regular cleaning fee) before I will clean again. A clear cut off point is important because when collections go on too long, payment amounts can snowball. If payment amounts get too large, customers may never pay what they owe.
Avoid “just this once” excuses and don’t fold if your customers get angry. If you have a clear payment policy and follow a regular practice of calling a day before to remind your customers, you have given them adequate notice. However, they may forget even with your reminder. The trip fee reminds them with consequences. I’ve found customers who pay the trip fee once never forget to pre-pay again.
The Courtesy Call
I also learned it is a good idea to give your customers the courtesy of calling them about the missing payment before you leave their home on cleaning day. They may surprise you.
When I called one of my regular customers on her cell phone about a missing payment, she was in an out-of-town business meeting. She slipped out of her meeting while speaking to me. Over the phone, she gave me directions to her family’s cash drawer and told me to pull the payment from their private cash stash. Thanks to that phone call, I got paid and her home was cleaned on schedule. Problem solved for both of us.
Get Out In Front
To move from playing catch up to getting out in front of cash flow issues, you will have to re-work your payment and collections policies. The first policy change is to no longer accept checks or cash. If you have a website, add a secure page to your site where you can safely accept online payments. There are a lot of payment choices for house cleaners, from Stripe and PayPal to automated systems you can run from a smartphone.
Yes, you will have to pay 2 to 3 percent to the payment processor, but you will gain time and peace of mind in return. Plus you can fold an extra 5 percent into your prices to cover the added expense of paying a payment processor.
Second, start billing you customers on a monthly basis. Instead of collecting payments just before each cleaning, set up monthly recurring payments. Just like you pay rent or a cell phone bill once per month (usually at the beginning of the month), set up a monthly billing system where your customers pay you at the beginning of each month for the cleaning you are scheduled to do that month.
With that system set up, the customer will get an automated receipt for the payment each month when their card is charged. Your payment processor will send you an automatic notification about the payment. It is also possible to automate entries into your bookkeeping or accounting software when payments are made. The process would look like this:
Your customer, Sandi Harris, is set up on recurring billing. On the first of each month, a lump sum payment covering the price for all of the cleaning for the coming month is charged to her credit card. Sandi automatically gets a full receipt for the charge by email. At the same time, your business is notified about the payment by email. Since you set up automated entries of payments into your Quickbooks account, you also get notified of the payment entry into that account. Those are four automatic payment tasks—and you did not have to call or chase the customer down at all.
Making The Change
The hardest and scariest part of getting paid first on a monthly basis will be making the change. If you have been picking up a check from the kitchen counter or leaving an invoice and waiting to get paid, this will be a big leap for you. You will first have to make the shift in your mindset. You will have to realize “yes, this can be done” and “yes, I will keep nearly all of my customers”. Not to mention, all of your new customers will think of monthly billing as normal. Once you get past those mental barriers, it is a matter of finding and setting up a payment system that works for you.
In this podcast interview, Mike Campion of Grow My Cleaning Company gave tips to business owner, Michael Guerra on why and how to start monthly recurring billing with his customers. In the podcast, they discussed:
• How monthly billing improves cash flow 10:30
• The “wrong” way to make the change to monthly billing 12:30
• The “right” way to make the change to monthly billing 13:00
• The accounts receivable snowball you want to avoid 13:20 to 15:00
• How to roll out the system with existing customers 18:12 to 19:04
• The types of customers who may drop your service because of the change 19:50
Click on the player to hear the entire interview:
Do Your Homework
If you decide to make this leap, be sure to do your homework. Read, research and read some more. Learn everything you can about accepting credit cards. Learn about the risks and rewards that come with recurring billing. Be clear about how to protect your business from fraud. Make a plan on how you will make the change including:
➢ Setting a monthly price that covers the times you clean a bi-weekly customer’s home three times in the month instead of two. Figure out a monthly average for each customer. Be sure to cover the costs of accepting credit, debit and charge cards like American Express in the monthly price. The monthly recurring price should be the same each month.
➢ You will need to send a letter to your customers telling them you are changing to a different billing system. You will also need to update your Service Agreement notifying customers about the change to payment by credit cards only and recurring monthly billing. Follow up that letter with an in-person visit or by phone to answer any last-minute questions.
➢ Depending on the payment processor you choose, you may need to get a signed credit card authorization form from your customers. Your form should have a clear cancellation policy. Be sure to include policies that cover what happens if you get sick or plan to take time off that month. What happens then?
➢ Set up the monthly recurring billing system. Don’t forget automated notifications to your customers before their cards are charged. Set up automatic receipts to your customers once charges are made. Make sure notifications are sent to you when monthly bills are paid.
➢ When will you start the monthly billing system? You can set up recurring billing with all new customers to test and refine the system. Then make the change to your new billing system with your existing customers with a month or two of notice.
➢ How you will handle any errors or complaints about monthly charges? Have a plan to cover what happens if their card is declined or if they dispute charges because they are unhappy with your cleaning that month. Think those situations through and come up with policies to handle any problems with the billing system.
What Healthy Cash Flow Feels Like For You
If you have been chasing customer payments for your cleaning service, consider making a change to some form of prepayment. Whether the change is to getting paid just before each cleaning or making the leap to monthly recurring billing, create a cash flow system that fuels your business growth. A system that ensures you are paid for your work. A system that helps you invest more time and energy into your cleaning business. A system that washes away the drama and stress of collecting money from customers after you have cleaned their homes.
You may also find your relationships with your customers improve. People tend to treat you better when you set boundaries and limits in your working relationships. Paying you on time, without any drama should happen all of the time. You should deliver excellent cleaning. Your customer should pay you the same way they pay for many other services. It is a great exchange when you have systems in place to maintain healthy cash flow in your business.
How are you paid for your cleaning services right now? Do you have to chase payments? Share your experiences in the comments below. ⬇︎
Cell Phone Photo Credit: Raw Pixel