Stop The Billing Process So You Get Paid Today

[Editor's note: Welcome to the fifth installment of "Money Talks." Each month, Terry Nicholson, president of AirTime 500, will be providing business management information, all with the aim of helping contractors, as he put it, "make money every day."]

We live in a wired world, and that wired world has made everything available at the click of a button. You can do everything in the comfort of your home from re-serving a flight to ordering drugs from your local pharmacy.

With that ease has also come the expectation that consumers will pay as soon as they click. When you order something over the Internet, or even by phone or mail, you'll instantly have to enter your credit card as part of the transaction, and yet these online companies generate millions of dollars. Consumers don't put up a fight about having to pay today for something because that's what they expect to do.

When you go to a grocery store or a department store, you can't leave with goods without paying for them first. Today's consumer world isn't built around the idea of billing like it was in the past. With that in mind, your business shouldn't be built around this process either.

The Money-Draining Myth

The myth that contractors have a tendency to cling to is "I have to bill my clients." In the residential HVAC business, billing your clients shouldn't happen. The billing myth is one that perpetuates itself from contracting generation to generation.

The truth is that clients expect to pay, and successful companies collect at the time of service. They don't bill. In fact, it's so expected that the No. 1 reason contractors don't get paid today is that they didn't ask. It's just that simple.

Billing your clients leads to high accounts receivables, which become a weight holding your company back. High accounts receivables create a money drain where cash flow simply leaks out of your business. Stopping high accounts receivables and plugging that leak starts with getting paid today.

Dangers Of The Money Drain

Once you fall into the trap of accounts receivables, it's tough to get out.

You won't have the cash flow you need to do things like market and train your team. Without the money you need to market, you'll start getting fewer and fewer calls.

When that happens, you'll start taking on jobs with lower margins to get some cash. Doing that will shrink your profits, and you'll be left with even less money. In fact, your revenue may be increasing as your profits decrease. You may have to hold or skip your personal paychecks. You may have to ask employees to hold their checks.

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In the end, you'll be stressed out trying to collect enough of your accounts receivables to keep your company afloat.

If you're in the commercial or construction sectors of the industry, it may be impossible to avoid accounts receivables, but in those instances, don't allow your accounts to draw out any longer than 90 days. Make zero accounts receivables your aim in the residential HVAC world.

Getting Paid Today

Getting paid today really boils down to five steps.

1. Leadership - Make the leadership decision that you're going to collect for services at the time they are rendered.

2. Training - Once you've made that decision, you must communicate that conviction to the rest of your team. Let everyone know your plan.

3. Creating the expectation - Getting paid today revolves around setting up the expectation to pay in your client's mind when they call in for service.

4. Technician follow-through - Your technicians must then get the authorization, from your clients, for the work before they begin and collect afterwards.

5. Accountability - Once everyone knows how you're going to stop the money drain, the final step is holding everyone accountable.

Making money every day involves getting paid every day, so stop taking on accounts receivables and create the cash flow you need to succeed.

Next installment: How do you avoid crashing and burning? It starts with focusing on building wealth, generating revenues, and boosting your sales. To do that, you must focus on three areas daily:

(1) know what you need;

(2) boost what you have; and

(3) what gets measured, gets improved.

Nicholson is president of AirTime 500. For more information on AirTime 500, call 800-505-8885. Nicholson can be reached by e-mail at tnicholson@venvestinc.com.

Publication date: 05/10/2004