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Fitting the Pieces Together: A Guide to Office Operations for the Liquid Waste, Portable Toilet & Septic Pumping Industries |
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Billing your customer for your services for the small and large business is overhead! It is hard work and takes time, money and good management skills to complete successfully. If you looked at the top five reasons Mom and Pop businesses do not grow, billing would be near the top of the list. For any billing system to work, you need to :
Record what service was completed, when it was done, how much material was used, and how much you are charging in detail.
Identify taxable and non-taxable items.
Write these items out in a clear fashion.
Keep a copy of them for your files.
Mail the invoice.
Track the payments against each individual invoice.
Send statements for non-payment of invoices.
Charge late fees for non-payment.
Create new invoices for late fees.
Etc.
It is much easier to do the work and receive immediate payment, with NO PAPER WORK.
There are several different ways you can invoice a customer. We are going to look at some of the most common alternatives used in the Septic and Sewer and Drain businesses.
This is the favorite alternative for the septic and sewer and drain businesses. You arrive on site, complete the service and receive payment. You then supply a hand written receipt for services supplied. When you return to the shop, the cash and checks are deposited in the checking account, which completes the invoicing cycle. The nice things about this method are:
No paperwork.
Every job is completed in one step.
Cash flow is easy to control.
Outstanding receivables (unpaid fees for services supplied) are always zero.
Like any good thing, there are two sides to this system. Some of the negatives of using COD billing are that it:
Removes you from a large market segment of customers, primarily those who expect to be invoiced at the end of the month for services, e.g., commercial accounts, rentals, etc., those who regulate payments, and those short on cash.
Minimizes chances of working on larger jobs. These usually require you to track material and labor over an extended period. Without an invoicing system, you would have to do this manually and would more than likely miss chargeable items over time and thus not maximize profit.
No paper work means you have to track by memory all your activities and your profits over time. This becomes especially difficult when you gain additional employees whose memory and motivation may not be the same as yours, so you have to remember what has happened for the both of you.
As soon as you have an employee, COD requires extra management to avoid loss of revenue due to dishonesty. There is a story I like to tell about honesty. If you put a fifty dollar bill on a table and never tell anyone that it is your fifty dollar bill, even an honest person will take the money. But, if you say once a day or so that that is your fifty dollar bill, an honest person will not take the money. A dishonest person will take the money even if you nail it down and cover it in plastic. Invoices help honest people stay honest.
The resale value of your business is in your customer base. A prospective buyer buys your equipment, building, land, and customers. With no records of sales or receivables, there is no way to document your customer or sales base for any prospective buyers. Some questions a buyer might ask are:
What percentage of your customers are repeat customers? (A measure of customer loyalty.)
What percentage of your sales come from surrounding counties?
How have your sales changed over the years?
Without invoices, it is hard to answer these and other questions. The buyer may need this information in order to convince a bank to loan him the money to buy your business. Without records of sales, you tend to be in the business of selling used equipment rather than passing on a profitable business.
Usually an invoicing system will automatically maintain a marketing system. This allows you to send out reminders for re-pumping or holiday messages, or just a note so that customers can have your phone number nearby. Without invoicing you need to keep a separate system to do this. Usually, the effort and money used to keep these records up to date is an unnecessary effort if you have an invoicing system. Without invoices, you have manual COD work as well as the reminders, i.e., double the work and half the pleasure.
This is the accepted practice in most businesses. In this system, a customer receives a written record of services and a receipt of payment. An invoice is then used by your company to maintain a record of services rendered and as a tool to resolve any invoicing, payment, or service issues that may come up. Another type of paper work that usually comes with invoices is statements. A statement is a recap of open invoices that your company has for an existing customer. Many customers pay off of statements; in fact most credit card companies work this fashion. When you make a purchase, a receipt is given to you detailing the item and a statement is sent to you at the end of the month requesting payment. Once payment is received, it is posted against the individual open invoices. Benefits of this method of record keeping include:
Complete tracking of sales.
Increased number of possible customers (a greater ease of billing allows more customers to be handled at a time).
Improved value of company by documenting sales activity.
Improved revenue by complete customer invoices.
Improved collection via statements.
Some of the potential negatives associated with invoice/statements are:
Requires the development and implementation of a record system to store and manage invoices.
Can be clerically demanding (most people end up using a computer).
Reduces daily cash flow.
Costs time and money to maintain.
Invoice/statement management is not pumping tanks, driving a truck, or running a back hoe. It is office work and it can be as hard or harder do perform successfully. It is mastered the same as any skill: causing high stress and being difficult to understand when first getting started, but soon becoming second nature as experience and the selection of the correct tools brings the work under your control.
Contract billing is method of billing for a service that is paid for over an extended period. Examples of this type of service are storage tank rentals, warrantees of septic tanks, fields and fixed pumping services, or any type of contract work. The terms and conditions of the work which specify when and how much the customer is invoiced are agreed upon. Invoices are then sent out requesting payment for services rendered according to the terms of the agreement. Some benefits of this approach include:
Long term contract of work and cash flow.
Reduced paper work (a single invoice can represent a significant amount of work)
An assured base cash flow to manage equipment and staffing objectives
Some of the potential problems include:
A careful development of agreements so that the overall contract is profitable. If the work costs $200.00 and you bill $190.00, you cannot make up the difference in volume.
A comprehensive invoicing system is needed to handle various terms and billing periods, e.g. monthly, quarterly, yearly, etc.
An expanded invoice format to handle text description of services.
The ability to handle exception invoicing in order to handle changes once the work begins.
You can see that there is a full range of ways of collecting payment from your customer, from cash on delivery to long-term contracts. Which one you use in your company depends upon the market segment you service, your number of employees, and your personal objectives for your company.