Improve cash flow and productivity

IN THE LAST TWO MONTHS we have talked about your balance sheet and your profit-and-loss statement. I hope you have a better understanding of both of these now. This month we will discuss ways to improve your cash flow and increase the productivity of your employees in the field. Collect at service call First, if you are a residential service company, all your service calls should be cash upon completion

IN THE LAST TWO MONTHS we have talked about your balance sheet and your profit-and-loss statement. I hope you have a better understanding of both of these now. This month we will discuss ways to improve your cash flow and increase the productivity of your employees in the field.

Collect at service call
First, if you are a residential service company, all your service calls should be cash upon completion of the call. Many service companies still allow their service technicians to simply have the office send an invoice to the customer and rely on the customer to send a check.

Think about that process and the time and costs involved. The technician has to get the invoice back to the office to be processed, someone in the office has to print out a new invoice for the customer, and then an employee must put that in an envelope, place a stamp on it and mail it. This has now added costs to the company. Although the costs may be small, they are still unneeded.

Once the customer gets the bill, most companies hope that they will turn it around right away and send them a payment. The reality is that contractors are usually waiting at least 30 days before they receive that payment from the customer.

If we consider the time value of money, by the time we receive that payment 30 days later, it is the same as giving the customer a 3% discount on the invoice. I know many of you are saying, "If I make my customers pay at time of service, I will lose customers." The truth is you may lose a few but not near as many as you fear.

Look at the world today: When you go to the doctor, most offices want your insurance co-pay before you even see the doctor. Ask your attorney to take on a case, and he wants a retainer up front before he will even start to work on the case. Contractors are as good as the doctors and attorneys of this country, and they should be paid accordingly. When was the last time you heard of a doctor making a house call?

Some say that technicians do not like to collect on the call because they do not want to have to ask for the payment.

If that's the case, let your call takers or dispatchers simply ask the question when the call is scheduled: "Mrs. Jones, how will you be paying for that — check, cash or credit card?"

This sets the policy that you are expecting payment at time of service. Please remember I am talking only about residential service in this case. I know that commercial is different.

Dispatch techs from home
Here's another idea: Dispatch your service technicians to their first call of the day from their home and do not bring them into the office every day. I know many service companies still have their technicians park their truck at the shop every night and drive their own vehicle home. In a class I taught recently, we ran an example of how much this can cost a company and how much productivity was lost.

In this example, the company had five service trucks. The average pay for the technicians was $22 per hour. On average, when you calculated the time beginning when the technician arrived at the office, got their vehicle, coffee, talked with other employees, etc., it was about one hour later by the time they arrived at their first call. In the evening, the time from their last call until they arrived back to the office was on average 30 minutes. This means that the company was paying 11/2 hours per day of unproductive time, or $33 times five technicians equals $165 per day.

Calculating 250 working days in a year, this equals $41,250 in direct wages paid per year because companies have their employees park the trucks at the shop each night. That's a lot of money, especially when you add another 23%- 30% to cover fringes and taxes.

Beyond that is the opportunity lost for more business. In this company's case, the average call was completed in 11/2 hours, and the average service ticket was $425. That means that the company was missing the chance to run five additional calls per day on regular time. This equals $2,125 per day, or $531,000 per year, in lost opportunities to the company.

This company had the chance to run an additional 1,250 calls in one year with the same amount of staff and not increase its overhead at all. Even if you do not get 100% of the savings — let's be conservative and say you only get half of it — that is still a big increase to the sales and profit numbers of your company.

Productivity quickies
A few more quick ways that you can increase productivity:

  • Manage and control your inventory.
  • Make sure that you do not overbuy your weekly needs.
  • If you have slow-moving items, reduce or eliminate them from your inventory.
  • Control where all your parts and pieces are going. Remember that for every dollar you have in excess inventory, that is one less dollar you have in working capital.
  • Take advantage of suppliers' discounts. Remember that a 2% 10th-day discount amounts to 36% APR over a year.
  • Have materials delivered directly to jobsites, as opposed to your facility.

We talk about many more ways to improve productivity and profits during the Quality Service Contractors' Business Operations and Systems Success class. Be sure to look for the BOSS class it as it comes around the country, and attend when one is near you.