"Show me the money!” The popular tagline is from the famous 1996 film “Jerry Maguire,” in which Cuba Gooding Jr. portrayed a football player challenging his agent to fight for his rightful worth. It’s also the perfect mantra for your company’s collections efforts. With equal urgency and enthusiasm, collections should be a primary effort shared organization-wide. Perception becomes reality. If collections aren’t perceived as important, they won’t be a top priority for staff members or customers.
Where our business failed at collections was by jumping on the list only when we were low on cash flow. Putting the company into a paralyzed state caused a rush to bombard customers to relieve the cash pressure. After years of punishing ourselves and our customers, we finally realized there is a better way. Here is how we turned the word “collections” from a dirty word into a welcomed part of daily operations.
The Collections Process
It’s always a good time to think about getting paid. Collecting money owed should be a consideration at all phases of the process, including:
• At time of estimate scheduling.There is no better time to gather all the information needed to help collect a balance than when scheduling the estimate. Usually this is when the customer is in the most need and will volunteer detailed information such as mailing address, e-mail and cell phone number, all contact methods that will make collections easier. Create an estimate scheduling form so these items are not missed. Have the estimate scheduler to verify building ownership via the county’s online tax collector or property appraiser website. It’s good to know who the real owner is so the contract can be titled correctly to ensure proper enforcement of contract terms.
• At time of estimate.Setting solid expectations at the time of estimate will make the entire collections process easier. It can also be a powerful sales tool. Present payment terms as an option for the customer choose. Letting the customer take ownership will let them set their own standards they will feel inclined to live up to. Try something like, “You have the option to pay a 50 percent deposit with balance due upon substantial completion. Another option is a 20 percent deposit, with 50 percent due upon dry-in and 30 percent upon substantial completion. Or would you like to take advantage of our other payment options?” Also, let the customer know there is a final step to their project at which time payment is expected. We call it the “final walkthrough,” and it concludes with turning over final documentation and receiving payment.
• During production.When job changes occur, make sure to procure a signed acceptance of the detailed changes and the price they represent. If needed, stop the job in progress until a work order is authorized. It’s always better to set a firm price on the work order rather than one based on time and materials, which can be disputed later.
• Upon completion.Use a closing packet as a way to finalize job completion. Include items such as warranty, copy of job photos throughout the project, finalized permit inspections, care for your roof inspections, maintenance guidelines, final invoice, sign-off sheet and an IOU page for any unfinished or punch-out items that need to be fixed. Try to schedule this when the crew is just finishing the job so any small touch-up items can be completed while they are there. Perform a final walkthrough with the customer. If there are punch-out items, get the customer to commit to holding back a small portion of the final balance until the items are fixed and have them sign the sign-off sheet so the crew can be paid their bonus.
• Initial collection attempt.Send an invoice via e-mail, fax and mail the very day of job closing. Include a letter showing your payment terms and collections process with strict time frames and the costs associated with each step. Notice the customer that they have seven days to report any defective work in writing or the debt will be considered valid.
• Second collection attempt.Between 14-21 days after the job is completed resend a copy of the invoice and a new letter via e-mail, fax and mail. This time add an abbreviated copy of your state’s lien law guidelines. Have your collections administrator personally call to ask if there were any issues with the job and to collect payment. Alert the customer that they may be receiving a Notice to Owner to preserve your company’s lien rights.
• Notice to Owner.Between 22-28 days after invoicing send a Notice to Owner. The Notice to Owner is a formal legal warning that you have the right to lien and foreclose on their property if not paid. Check with your state for time requirements.
• Certified Notice to Owner.Between 41-56 days from time of invoice, send a Notice to Owner via certified mail. This will later be used in court to prove the customer was served.
• Possible lien.The next call, e-mail, fax and letter should include a warning that you intend to file a lien against their real property in order to collect a debt. Depending on your state laws, this should be sent 62-70 days from the date of invoicing. Describe what a lien is and what the potential ramifications are to their credit, ability to sell the property and mortgage company’s rights.
• Lien.From 69-84 days from invoicing, record a lien against the property and have the sheriff’s office service the owner with the recorded lien. A lien is serious enough, but having the sheriff serve it is worth every penny of the $35 or so it costs to do.
• Promissory note.One last-ditch effort before going legal is to get the building owner to commit to a promissory note around three months from invoicing.
• Court.If the balance is under $5,000, small claims court is a formal yet inexpensive way to collect the balance and have the support of law behind you. Otherwise it’s time to decide if the balance is worth thousands in legal fees to pursue a court case. Just having an attorney send a letter about filing suit and foreclosing on the property is worth $250 to show intent. If an account gets to this point it may be better to split the balance with the attorney when collected rather than writing a blank check for a lawsuit.
There is no silver bullet in collections. It’s a process. Setting up the right process and following it consistently won’t cure all your ills, but it will help.
This month’s homework is to create a collections process, if you don’t already have one in place. Script each attempt into all forms of media such as e-mail, call, letter and fax.
If you would like more detailed information about any of the ideas listed above or help with implementation please e-mail me at ken@kellyroofing.com. I’d be happy to send you sample collection forms you can use immediately for your own company.
