Important Steps to Make Your Company More Profitable

New innovations and technologies in the pest control industry are highly sought after. Better ways to identify opportunities, utilizing the latest technology, perform in a more “green” manner, improve efficiencies and reduce costs across the board are very attractive and worthwhile initiatives. These initiatives all come with an associated cost. Of course, the ultimate goal is to ensure that these investments result in increased revenue and cash flow for your company.  This is what makes the upfront cost and effort worthwhile.

Unfortunately, many companies invest in opportunities and resources to increase their customer base and product offering. In doing so, losing sight of the fact that these increases need to ultimately result in cash for the company to justify the cost and effort.  For example, if you are currently producing $1,000,000 per year in revenue, and you increase your customer base (and sales) by 20 percent this brings you to $1,200,000 in annual revenue.  If 10 percent of just your newly generated revenue is allowed to fall past due without much attention, that results directly in $20,000 of lost cash flow; ultimately being written off to bad debt.

To this point, it’s critical to an organization to have an effective credit and collection policy.  A strong policy surrounding your credit and collection practices can ensure you bring on the right customers and keep those customers paying according to your payment terms. With cash flow being the lifeblood of any organization, it’s critical that accounts receivable get as much attention (if not more) than any other initiative within your company. Below are some best practices for establishing and maintaining an effective credit and collections policy.

Have a Plan
First and foremost, it’s critical that your key management is on the same page with the importance of this policy. A credit and collections policy does not begin with the accounting or accounts receivable department; it begins at the time of sale and continues through the entire lifecycle of an account. It is paramount that your entire team understands their role and impact on the policy.  They must all have a working understanding of the overall goals of the collection policy.

Once you have everyone on the same page, it’s time to start putting policies in place.  Again, a solid credit and collections policy begins at the time of sale. When new customers are brought on board, this is the best and sometimes the only time to gather as much information on them as possible. Primary information that should be collected include: name, address, phone number, etc.  But additional information that may be helpful down the road should be gathered now: additional contact phone numbers, alternate addresses, best days/times to be reached, e-mail address, cell phone communication authorization, etc.  Your policy will do everything possible to ensure you never need to use this information, but inevitably, some customers will force your hand and it may become necessary. Once a customer has a past due invoice, they are not typically as willing to give you their additional contact information.

Constant Communication
Once you have a customer on board, and have gathered the appropriate contact information, you will start billing them. One of the keys to an effective collection policy is timely and frequent communication regarding invoices. Your specific company policies, software and staffing all need to come into play when deciding on a communication schedule. As a general rule, the more often you can communicate with a customer regarding their invoice, the better. This should include reminder calls and/or letters when an invoice is approaching its due date. A proactive approach in communicating with your customers will allow you to address any unknown service issues or personal financial struggles. Don’t count on your customers to be vocal with all of their questions or concerns. Often, the way a customer lets you know they have a question or concern on an invoice is by not paying it and waiting for your subsequent call. The earlier you do this, the earlier you become aware of the situation and can start to make arrangements around this.

Additionally, this timely and frequent communication begins to teach your customers that you have a well-organized policy in place and that they can expect to hear from you if they fall past due on their invoice. Often, customers become well aware of which vendors they can pay late without consequence. You do not want to be on this list.  Make sure your customers know that they will hear from you if they fall past due. This will put your bill towards the top of the stack when the customer is in a position of deciding whom to pay.

Frequent and timely communication when a customer actually does fall past due is also critical.  This is your first sign that an account is in jeopardy of going unpaid, remaining unpaid, and ultimately being written off to bad debt. An ounce of prevention in this area is worth well over a pound of cure. A phone call to engage the customer in a conversation about their situation and/or a letter to let your customer know that they need to get in touch with you can go a long way in diagnosing the situation and allowing you to propose all possible options to your customer.  Many times, customers feel their only option is to pay a bill in full and if they can’t do that, they become completely uncommunicative. While this may be the only option, it’s still very worthwhile to have a conversation with your customer. This can help work through any issues, and it can reassure them that if this happens again, they can call you and count on assistance rather than just hard demands for full payment immediately. Again, this retrains your customer how you handle past due invoices and shows that communicating with you is always the best route to take.

As customers reach later stages of delinquency, it’s important to start letting them know what specific consequences may take place. This can range from a late fee, to discontinuing service, to being sent to an outside collection agency. All of these options (where permitted) should be part of policy and used in an escalating manner. This will ensure that you are not presenting every negative consequence to a customer that merely needed a nudge in the right direction.  If your approach gradually escalates, this allows you to become as aggressive as necessary without the risk of alienating customers that don’t require higher levels of intensity.  Your letters and calls should be consistent in letting your customers know when certain actions will take place. This gives your customer a deadline to work from and allows them to control their destiny. A letter stating “we have assessed a late fee on your account of $30” just frustrates a customer. It makes them feel like there is no need to respond urgently since the late fee has already been applied. A message of “A late fee of $30 will be assessed if this account is not brought current in 10 days” gives your customer a reason to treat the situation with the appropriate urgency to avoid the negative consequence.

Asking For Help
Ultimately, all your efforts will still leave you with a small subset of customers that continue to be unresponsive. This is where your strategy must include a point at which you cut your losses.  At some point, all of your efforts will have been exhausted, and repeating them over and over is just spinning your wheels. Generally, in the pest control industry, we see that somewhere between 60 to 90 days is where the results of your internal collection efforts begin to deteriorate. And since your cost for sending letters and making phone calls never goes down, your return on investment begins to diminish significantly as fewer customers respond—to the point where you will actually have a negative ROI on these efforts. Your specific “sweet-spot” of where your results start to decline will vary, but it’s important that you identify it. It is critical that you have a plan in place to escalate your accounts to an outside collection agency. Again, in keeping with the theme of the policy, this should be reserved for the customers that require this level of consequence. Accounts reaching 60 to 90 days past due without any sort of resolution on their account are ideal candidates for this step.

Your relationship with your collection agency is critical.  It should not be a burden on your team to submit accounts to the collection agency. You want the process to have as few barriers as possible and it should be very easy for your team to follow.  When securing a third-party collection agency, ensure they have a seamless and user-friendly way of accepting your accounts so you can always be confident that your collection policy is moving forward as outlined. Additionally, the agency you choose needs to have the same philosophy on customer service and retention that you maintain internally. Your agency will be an extension of your efforts and a reflection on your company. Despite common misconceptions, third-party collection efforts do not need to be demeaning, aggressive or alienating to customers. Traditional contingency collection agencies are strictly motivated by squeezing every dollar possible out of the accounts placed since this is how they are compensated.  In contrast, a Flat Fee model is structured to be in line with your goals. Customer sensitivity, reengagement and retention is the goal as this model promotes continued forward flow of business.  Ensuring you find an agency that understands and nurtures a customer sensitive, diplomatic approach will guarantee a long and fruitful relationship.

As with any policy within your organization, simply documenting it is not enough.  Your policy does you no good if it just sits on the shelf and is not adhered to. Create your policy, deliver it to everyone involved, and monitor it. Even the best outlined policy is completely ineffective if it’s being ignored or overlooked.

So, when is the time to create and implement your credit and collection policy?  Now.  Every day that passes without a policy in place equates to lost dollars.  Follow these three steps to start and maintain your credit and collections policy:

1. Gather your team to formulate and compile a plan for your policy.
2. Ensure consistent communication with your customers is the foundation of every step along the way.
3. Know when it’s time to stop spinning your wheels and escalate your efforts to the next level.

Don’t wait for someone else to do it.  Don’t wait for the perfect time to come along.  And don’t wait until it’s too late.  Taking these 3 steps will ensure that you protect the single largest asset your company has.


By Andrea Dahlgren, A.R.M. Solutions, Inc.

Andrea Dahlgren has over 10 years’ experience in the financial industry. Andrea is a nationally recognized expert and one of the key speakers for the PestPac User’s Group, PestPac University, and key industry association meetings.