Entrepid

Earlier this week I was in the market for a trailer hitch. The automobile dealer wanted about 3 times what I thought was a fair price (Hello, Volvo?) and I heard from a couple of people that U-Haul did a good job at a reasonable price.

U-Haul can tell you on their website which locations are nearby and what services they offer. Some only rent trucks, so I could bypass them. With a list of phone numbers I proceeded to call the locations that offered trailers and trailer hitches.

Unfortunately, not all locations offering trailer hitches had “trailer hitch mechanics” on site to install them. And the ones with mechanics couldn’t get to me for at least three weeks.

After an hour’s worth of research online and another hour of unsuccessful telephone conversations I gave up and decided to take a different direction. I was prepared to spend money with U-Haul, but they made it next to impossible to do so. They could have made it easy.

How difficult would it be to show online which locations actually install trailer hitches. And, how difficult would it be to show available times and allow me to book an appointment online? Making it easy for me would have created a happy customer for U-Haul.

Also, as a highly motivated buyer with a deadline I would have been willing to pay extra for speedy service. Are trailer hitch mechanics so valuable that the company can’t get one to work an hour of overtime for a customer willing to pay an extra $50 or $75?

I’m not singling out U-Haul, we’ve all had experiences with businesses making it difficult to spend money with them. If I had one piece of advice it would be this:

Put yourself in your customer’s shoes. Attempt a buying transaction with your own company and see where the kinks are. You might just be surprised.

Mark at Productivity501 uses an example of a client’s accounting system to illustrate the importance of integrating processes over having “best of breed” software.

“If you choose your solutions based on integration instead of features, you’ll increase your productivity–even if you have to sacrifice some features. If you choose your solutions based on features and ignore the integration aspect, the time savings benefits will be greatly reduced.”

My response is a hearty “Amen!” If I had a nickel for every dysfunctional work process I’ve seen I could stop working for a living and blog full time. I’ll go a bit further than Mark, though, and say that lack of integration isn’t just limited to software. Processes can break down for a whole host of reasons:

People – if you have employees who just cannot work as part of a team, the best designed work process will not function to its potential.

Physical Space – if people, or departments, who should be working together are too separated physically, communication is thwarted. While modern communication tools are great, and have done wonders for keeping people connected, there is no substitute for the regular, spur-of-the-moment face-to-face contact.

Strategy – by this I mean the lack of communicating the strategy to your people. It doesn’t matter if it’s because a strategy doesn’t exist or because you don’t communicate that strategy to the rest of the organization – if your people are making decisions in a vacuum they won’t all be on the same page.

These are just off the top of my head. I’m sure there are plenty of others. Care to add your two cents?

One last bit of wisdom from Mark:

“A well designed integrated process with average tools is much more productive than the best tools, but no integrated process.”

John Jantsch at Duct Tape Marketing says that marketers of services can learn a thing or two from retailers.

“All it takes is looking at your marketing from some new perspectives.

· What if you offered gift certificates for your services?

· What if you mailed those gift certificates to your loyal clients and encouraged them hand them out?

· What if you offered bridal or baby registry? (C’mon, get your neighbor’s kid a tax return for their wedding - way better than a toaster)

· What if you held over the top events for your clients? (I know a remodeling firm that buys out a Christmas tree farm for that year’s clients)

· What if you had a holiday, client only, sale or new service introduction?

· What if you held education forums aimed at very specific niches of your clientele? (single women, parents with kids going to college, sports minded families, people learning to be more green.)”

I think those of us in service businesses somehow think we are (or should be) above the kinds of things that those less-than-dignified product marketers do to move merchandise. And, while I wouldn’t want to copy some of the more outlandish ones, we can certainly borrow the tried and true and modify them for our service businesses.

What do you think? Do you have any additions to John’s suggestions?

If you’re jumping in midstream, the series begins in Part 1 with the complete list. Part 2 can be found here.

3) Set the standard up front and be firm

It’s human nature to try to get away with whatever we can. Those of you who are raising, or have raised, young children know this from experience. You’re being naïve if you think everyone leaves the child behind when they get older.

If you want your customers to pay you on-time, every time, you have to deliver a consistent message: “We’ve kept up our end of the bargain and so should you.”

And when I say consistent, I mean 100%. Like the child attempting to wear down the parent with a never-ending series of Can I’s, your customers will constantly test you to see if you’re serious. Let them slide 5 or 10 days this time and next time it will be 10 or 15 days. Before you know it, the customer with 30-day terms is paying you in 60 days. Do this with enough customers and your Accounts Receivable get out of hand.

I’m convinced that lack of firmness on A/R terms comes from a place of weakness. We’re afraid that somehow what we provide to our customers isn’t quite good enough. And if we push them on payment, they’ll go somewhere else. While this may be the case in a small minority of situations, I doubt that your customers decided to do business with you because they thought they wouldn’t have to pay you on time. Operate under the assumption that they buy from you because of price, or customer service, or quality, or anything other than you’re an easy mark. Your wallet, and your blood pressure, will thank you.

4) Use late charges and enforce them

Remember that I said in Item #1 that Accounts Receivable is your money. You’re just letting the customer hold it for awhile. If they hold it for longer than you’ve agreed to, it’s only appropriate that they pay you for the privilege.

Assessing late charges accomplishes two goals. It not only incentivizes your customers to pay you on time, but it also compensates you in case they don’t. You should make sure of the legalities in your jurisdiction, but I recommend at least 1.5% per month, or part of a month, that payments are late.

This is another case where sticking to your guns is important. Make your policy that a payment has to be received, not mailed, by the due date. And, in case a check doesn’t clear act as if you never received it in the first place.

I had a chat with a client the other day and he laid out his thoughts concerning the levels of employees in an organization. He was attempting to evaluate the value of continuing the relationship with his business partner.

I thought his observations were very insightful and my readers might learn something from him. Thanks, BC!

You show up on time and do what you’re told

It may sound harsh, but not necessarily inaccurate to say Level 1 employees are those people without skills, but fill a need anyway. They may have a future after learning the skills necessary for the job, or maybe the job doesn’t require skills.

The minimum performance measure is to show up on time, every time, and do what the supervisor says to do.

These people don’t have a lot of long-term value unless they climb up to the next level. If your work requires only Level 1 employees, be prepared for lots of turnover.

You can do your “craft”

Level 2 employees are sufficiently skilled in their craft to be able to work with minimal close supervision. You should be able to give a Level 2 employee a simple goal and expect them to complete the task, or series of tasks, without having to direct each step in the process.

You can supervise Level 1’s and Level 2’s

Level 3 employees have enough knowledge of the tasks that 1’s and 2’s are responsible for to direct and supervise their activities. Level 3’s don’t need to be as skilled in the actual performance of the tasks, but they need to know enough not to be fooled when an employee says “that can’t be done” or “there’s not enough time.”

You can manage a project

Level 4 employees can see the big picture enough to be able to manage resources (people, material, time, money, etc.) toward the completion of a project with minimal assistance from higher-ups.

These employees are experienced in their occupations, have a measure of business savvy and are capable of managing and motivating employees. They are also extremely valuable to your organization.

You can manage an enterprise

A Level 5 is generally the owner (although not all owners reach this level) or a trusted senior leader in the business. They can see the whole picture and are capable of developing and implementing strategy, deploying capital, recruiting and managing Level 4’s and creating the culture of the organization.

Ideally, if you’re going to pick a business partner it should be a Level 5 person. However, they are few and far between and may not be available to a small business or startup company. Level 4, project manager, is the lowest level I’d recommend for a business partner. The difficulty arises when neither/none of the business owners are Level 5’s. In that case it’s vitally important that the business owners engage with outside advisors or mentors who can help them with managing the enterprise.

After some serious thinking, my client arrived at the conclusion that his partner was no higher than a Level 2. A very skilled Level 2, but not valuable as a partner and leader of the organization. He decided to end the partnership.

Jeffrey Pfeffer in Business 2.0 writes in favor of deadlines:

So although setting a deadline may help rivals plot strategy, it can also get allies to act, create a sense of urgency when you need it most, and possibly even convince opponents that you’re serious. That’s why astute managers use deadlines to get things done.

My experience is that deadlines, especially self-imposed ones, are the key to keeping on track in managing your business. The problems arise when you have 25 things on your To Do List, all with vaguely defined wish-to-get-done-by dates, and none of them seem to get completed.

As promised in Part 1, the series continues with an in-depth look at each of the 15 Things You Can Do To Get Paid Faster. In this post, we’ll look at the first two items on the list.

1) Make a commitment

You didn’t get into business to do drudgery like manage your accounts receivable. You want to do the fun, cool things and watch the checks roll in. But the sad fact is that a lot of your customers are not going to send payment when they’re supposed to. You have to give them a reason, and often that reason is you’re on top of things and they know it. This really is a case of the squeaky wheel getting the grease. Or, more appropriately, the squeaky palm getting greased.

Once you provide your service or ship your product the revenue is now your money, and you’re just letting the customer hold it for a little while. Every day they are late, or heaven forbid, they don’t pay at all, takes money out of your pocket.

Think of it this way, if your company has a net income before tax of 10% of sales, just 5% of accounts receivable becoming uncollectible cuts your profit in half. Effective management of your A/R not only gets the money into your checkbook faster, but cuts down on the number of accounts that turn into bad debt.

If there is one common theme among companies I see with collection problems it’s that the owner didn’t make a commitment up front to manage A/R and got into cash flow trouble because of it. Better to avoid trouble in advance then try to extricate yourself later.

2) Provide value in the relationship

If you have accounts receivable, you probably have accounts payable as well. Think about the vendors you always pay on time, even if you have to sacrifice something else. Then think about the vendors you put aside for another day. What’s different about them?

The vendors you pay on time, every time, are the ones you can’t do without. It’s that key supplier without whose product you don’t have sales. It’s the utility or telephone company – if they cut you off you’re out of business.

Or what about your most important “supplier” of all: your employees? Try not paying them on time and see what happens.

A discussion on methods of providing value to customers is the subject for another day. For now, just know that being that critical supplier to your customers makes your job of collecting accounts receivable so much easier.

I’ll be writing a series of posts on how to speed up your Accounts Receivable collections. For those of you who can’t wait, here’s the full list of 15 with one bonus.

1.) Make a commitment – keeping on top of your collections isn’t fun, but it is necessary.

2.) Provide value in the relationship – be the vendor or service provider the customer can’t live without and won’t want to damage the relationship with.

3.) Set the standard up front and be firm – your customers will respect you if you hold firm to your payment standards. The ones who get paid on time are the ones who insist on getting paid on time.

4.) Use late charges and enforce them – part of setting standards and being firm.

5.) Invoice quicker – invoice as soon as your work is done.

6.) Send invoices electronically – save a couple of days’ mail time.

7.) Invoice more often – no law says you can only invoice at the end of the month.

8.) Get up-front deposits – the ultimate in quick collection.

9.) Develop a working relationship with the client’s A/P person – if they like you and respect you, you will go to the front of the line.

10.) Call in a couple of days to see if they got your invoice – eliminates the “Gee, we didn’t get your invoice. Can you send a copy?”

11.) Call in advance of the due date – to head off problems before the account is overdue.

12.) Accept payment electronically – this not only gets the money into your account quicker, but eliminates “The check is in the mail.”

13.) Send thank-you’s – especially near the start of a new relationship to acknowledge quick payment.

14.) Deposit checks right away – sets the tone for how important prompt payment is to you.

15.) Make collection calls as soon as accounts are late – if you’ve already called to head off problems, there should be no reason for late payment.

Bonus

16.) Cut off chronic late payers – a pattern of late payment indicates possible financial problems with a customer. Don’t be the one left holding the bag when they declare bankruptcy.

Here are the posts discussing these 16 items in more detail:

Part 2, Part 3, Part 4, Part 5, Part 6, Part 7 (and final)