Improve Cash Flow - Payment in Full Before Installation
I caught up with a prominent and successful retailer while travelling in Victoria this month. Mark Hodgson of Carpet World has been an RFMS client for a little over a year, so the reason for the visit was primarily around IT, but, as is usually the case we chatted about the industry in general and lamented the challenges of flooring retail in particular. In the course of conversation, he told me about the benefits Carpet World has enjoyed since adopting the policy of having 100% payment before installation.
I must admit that from my days in retail 100% payment before installation seems like a sure way to lose sales; by the time we sold our business, we had inched up from 30% deposit to 50% deposit with the balance payable within seven days. Needless to say, we had a full-time accounts receivable person in the office, a swollen debtors ledger, and annual bad debt write-offs. Even so, we were resistant to increasing the initial deposit beyond a point where we thought it would harm sales — we would have considered moving to 100% payment before installation to be sales suicide.
“…the industry as a whole would be better off if more retailers required jobs be paid for in full before installation.”
Mark Hodgson – Carpet World
Mark suggested I should make this the subject of my next article. My response was that I would have thought he would want to keep these benefits to himself, but he told me the industry as a whole would be better off if more retailers required jobs to be paid for in full before installation.
In fairness, requiring payment in full before installation is something I have seen more frequently over the past couple of years. The benefits are obvious, and Mark more than anyone is particularly enthusiastic. When I asked him about any fear he might have about losing sales, his response was simple; those people who were unwilling to accept his terms of trade were very likely on his competitor's debtors' ledger. If it has cost Mark any sales, the benefits clearly compensate.
One of the biggest challenges a business faces is maintaining cash flow. The problem can be particularly acute in the flooring industry; the average sale value is high, and projects can be delayed for all sorts of reasons outside of our control. Again, harking back to my time in retail, I can recall product sitting for years in our warehouse waiting for customers to complete renovations. On more than one occasion, we had projects that finally did not go ahead because marriages split up before the work could be done. In those situations, if the initial deposit fully covered the cost of the product, it was likely more good luck than good management.
Do the sums for yourself; how much money would you have in the bank today if the product for every confirmed job was paid for, and if every scheduled job was paid in full?
Of course, change takes some management to achieve.
In most cases, retailers requiring payment in full before installation will take two payments; an initial payment for the product on confirmation, and a second payment for the balance in the days leading up to installation. It’s not difficult to manage, but an integrated solution like RFMS makes it easier and fool-proof. Using the tools within Order Entry and Schedule Pro, the office can be aware of those jobs being installed that still require the second payment, and operations can see if a job has been paid in full before the installer leaves with the product.
Do the sums for yourself; how much money would you have in the bank today if the product for every confirmed job was paid for in full, and if every scheduled job was paid in full? But there are benefits beyond transforming cash flow:
Jobs paid in full are more likely to be installed promptly
Bad debts are non-existent for consumer sales
After installation, customers are not looking for reasons to discount the balance, so callbacks are reduced, and those callbacks that do occur are not bogus
Resources employed and time spent chasing bad debts are eliminated
If you are considering ways to improve your business, two things; think about changing your retail terms of trade to payment in full before installation, and take an hour out of your week to let us show you what RFMS might do for your business. You can contact me at cogden@rfms.com.