By Diane Schumm . . . The year to date has shown a considerable change in the economy, with tempered but hopeful optimism for the remaining months of 2015. It’s important for propane marketers to adapt to these conditions in dealing with their customer base. Knowing what may be affecting business positively and negatively makes everyone better prepared to maintain relationships while retaining consistent cash flow.
The propane industry emerged from what proved to be an aggressive winter, but with fewer supply and demand issues than 2013-2014. As with last year, the summer months have brought with them less urgency for customers to stay current with their bills, and a struggle for marketers to recapture those slow-pay accounts.
Looking ahead, the economic forecast is balancing out. With slow but steady growth in most industry sectors, customer need will likely continue to stabilize. However, we are still experiencing the consequences of their delinquent “survival” spending habits from last year.
As a business owner, knowing these emerging trends in customer behavior is key to responding proactively and professionally. You may not be able to control economic events that affect your business, but you can take steps to minimize delinquencies, optimize cash flow, and improve customer relations. Here are answers to top questions about how to bounce back in the months ahead:1. How can I increase positive cash flow?
Your cash reserves continue to be low due to residual effects from the past year and the efforts to stabilize moving forward. Many customers are now accustomed to paying late (if at all), so you’ve had less cash coming in. How can you generate more positive cash flow and maintain it for the long term?
Much depends on your internal collection efforts. Do you focus on the accounts that are 30 to 60 days past due, or the ones 90 to 120 days (and more) past due? Age is the greatest deteriorating factor in the collectability of a debt. So if you’re putting your internal energy and dollars into pursuing accounts over 90 days, the 30-to-60-day slow-pays are becoming less collectable by the moment. And you’re in a vicious cycle. The key is pro-activity:
• Call slow-pays immediately after due date. Reopen the lines of communication to remind customers of their obligation. Identify any service issues and resolve billing disputes.
• Make payment arrangements. Process full payment over the phone or set up a payment plan. If you don’t try to get partial payment, those dollars may not be available next month.
• Call habitually slow-paying customers first. You already know it’s not a service issue — they’re just slow to pay. Keep on top of these accounts.
• Review aging reports weekly. Make sure you know exactly where accounts are falling in the delinquency cycle so that you can prioritize your internal efforts.2. How can I get customers to pay on time?
The load-to-load mentality has developed over many years. Historically, propane marketers allowed nonpayment until customers needed their next tank of fuel. At one time, they could still realize a decent profit within this loose payment structure — but not in today’s economy.
There is no payment flexibility when it comes to customers’ electric, phone, cable, and other utility bills. So they’ve learned to prioritize and pay those on time. The goal is to change the load-to-load mentality and help customers view their fuel bill as a utility bill. You can’t force timely payment, but you can encourage a change in payment behavior:
• Send invoices on time. Timely submission lets customers know that you expect the same.
• Identify credit terms. Your invoice should be accurate and easy to read, and it should prominently state your credit terms so there’s no room for confusion.
• Create a sense of urgency. Clearly state the due date in no uncertain terms. The phrase “Due Oct. 30, 2015” is far more impactful than “Payable in 30 days.”
• Emphasize benefits of prompt payment. Remind customers that timeliness is the key to maintaining a good credit rating and avoiding a credit hold.3. How do I retain customers and sustain those relationships?
Customers who developed slow/no pay buying habits in 2013/2014 have a choice for the months ahead: Do I pay my outstanding bill plus the cost of another tank of fuel, or do I go elsewhere and just pay for my new supply?
That load-to-load mentality leads to attrition. So does the strain placed on relationships with customers who were once in good standing but had difficulties during the 2013-2014 winter. At the same time, your competitor’s loss for these reasons could become your gain. And while new customers seem like a blessing, if they’re the result of attrition elsewhere, they could actually be a liability. The best course of action is customer education and communication:
• Maximize sales opportunities while minimizing risks. Pull credit reports on new customers. Determine to whom you’ll extend credit and how much (for example, limited credit based on their credit report, collect on delivery, or full credit).
• Revamp your credit policy and procedures. Make sure your policies aid timely payment and customer retention. For example, if you place a debtor on COD once he finally pays, you’re encouraging him to go to a competitor who will sell him fuel on credit. The most effective strategy is to educate customers about paying on time — not chase them to the competition.
• Say thank you to customers for their business. Create an incentive for early orders or payment. Request feedback and respond.4. How do I reduce the burden on my internal staff?
As you take steps to correct your slow-pay and dead accounts, you may continue to face challenges for your overworked staff members. The goal is not to increase their workload, but to create efficiencies that ensure maximum value for their efforts:
• Maintain good customer data. Pull credit reports and get contact information from every new customer so you don’t waste time chasing it down when you need it. And be sure to update your database with new addresses, phone numbers, or names on the account.
• Maintain good account data. When you contact a customer, you need to know more than just how much he owes; you need his payment record, history of broken promises, and so on. You’ll save an exponential amount of time when data is up to date and readily available.
• Make phone calls count. Call on different days of the week. Try evenings and weekends when contact is most likely. Use a cell phone or block your company’s number to avoid screening.
• Get a commitment. If you can’t secure full payment, set up payment terms and get the debtor’s commitment that he will follow through. Specify each due date and payment amount, and enter all details into your system. Make one call that gets results to avoid making multiple, time-consuming, ineffective ones.5. How do I support my internal efforts with a third party?
The key to effective cash flow management is early intervention. The earlier in the delinquency cycle you forward an account to a reputable third party, the higher the recovery results. And you’ll free up more of your staff members’ time to do what they do best — service your customers. When choosing a third party, some key considerations include whether it:
• Specializes in the propane industry. The company is familiar with your unique challenges and knows how to communicate with your customers. Ask about references and endorsements.
• Focuses on customer retention. You’ve taken steps to ensure positive communication while trying to return accounts to good standing. Your third-party resource should do the same.
• Works on a fixed-fee basis. Some firms can charge 33% to 50% contingent fees, which makes early placement cost-prohibitive and any recoveries nominal.
• Offers comprehensive services. Does the company perform courtesy calls, first-party billing, and third-party collections? The more your partner can do on your behalf, the less the burden on your internal staff.
• Guarantees results. Most business owners wait to engage a third party to avoid throwing good money after bad. If you work with a fixed-fee based service that guarantees results, you can get a substantial return on your investment.
In summary, use your new-found knowledge of trending customer behavior to initiate new policies and strategies to improve your company’s bottom line. Be proactive — evaluate your current delinquent accounts, internal procedures, and past collection success rate. Put a plan of action in place immediately not only to recoup lost dollars, but also to prevent future losses.
Your entire organization needs to view credit and collections as a top priority in enhancing business operations, optimally servicing customers, and increasing profit margins for the remaining months of 2015.
Diane Schumm is vice president of corporate services for TekCollect Inc. Contact her at (888) 292-3530.