Get the Most Out of a Positive Cash Flow
Snyder discussed several ways that HVAC contractors can ensure a positive cash flow and thrive in any type of economic climate. He noted that it is important to establish a business relationship with customers, which includes establishing a good credit relationship, too.
IT BEGINS WITH THE CREDIT APPLICATION“Get all of your legal questions resolved before continuing the relationship,” he said. Snyder was referring to working with customers who are solvent and who agree to certain working conditions in an upfront credit application. He said the credit application should include such items as the “home court” venue in the event of a dispute, an 18 percent interest charge added to invoices 30 days or more past due, customer-paid collection costs including attorney fees, filing fees, and expert witness fees, etc.
Snyder said that 98 percent of his customers will sign a credit application with these conditions. It is all about protecting cash flow. He said, “Shame on you if you do any work for people who are not solvent.
“I can talk this talk because I’ve walked the walk. I work as a defensive contractor because everything I do I will have to be able to defend in a court of law.”
He also offered some tips on keeping a positive cash flow beyond working with solvent customers, namely, collecting accounts receivables. Snyder added businesses that can’t collect account receivables go out of business. He suggested collecting “progress payments,” which are collected during the actual work after an initial deposit is made and before a final payment upon completion.
VENDORS AND BUILT-IN CUSTOMERSSnyder talked about the important role of a vendor in maintaining positive cash flow. “If a vendor offers a discount, take it!” he said. “Discounting can also lead to better pricing, resulting in additional savings, more attentive service, and better credit ratings which, in turn, result in lower interest rates on borrowed money.”
Snyder talked about working with vendors who demonstrate flexibility in their billings. “Sometimes the best vendor isn’t the one with the cheapest quotes,” he said. “It’s the one with the most flexible payment plans. It is best to partner with these vendors because they may have good reasons to agree with conditional payment plans.”
Snyder said that no discussion about positive cash flow would be complete without talking about locking in the customers who are cash cows, generating a steady flow. These people are preventive maintenance customers. He calls them “magic” because every contractor wants this type of customer. The reasons are many:
Another way of owning customers is to offer something unique that competitors don’t offer and that gets contractors into a customer’s home on a regular basis. Snyder used his own example of how his company sells water meters to customers, which results in guaranteed monitoring, generates time and material work, protects the customer, and limits the contractor’s liability in the event of an equipment problem.
“This is an example of what a contractor can put in a system that will bring the customer back to them,” Snyder said.
Publication date: 04/16/2007