A few thoughts about late paying customers, reminder calls and late fees.
Living here in Missouri, you get to see quite a few cattle farms as you drive around in the rural areas. I heard a great analogy once that compares keeping customers current on their bills to keeping cattle.
The ones that are only a few days late slipped out of a tear in your fence and are munching the green grass that comes up just on the other side of the fence. You can send those cows back into the pasture with one quick sting form your electric cattle prod and you can mend the fence easily with a piece of wire and your pliers.
So if you keep a close eye on your fences, you can catch cows real easily and get them back in the pasture before they even know they are out.
The customers who are 15 days late are like the cows that got out of the pasture and wondered off into the woods near the pasture. You have to go into the thicket to coax them out or send your cattle dog in there to spook them back to the gate or the gap in the fence. If the gate or the gap in the fence is within sight, the cow will run back into the pasture for safety and familiarity. If not, you could be chasing Bessie all afternoon. If the gap or gate is not within sight, you can sting the cow all you want with an electric cattle prod and the cow will freak out with fear and confusion.
So if you let one of your customers get even this far behind, it is tough to get them caught up and paying regularly unless you can re-sell them on the value of their purchase and unless you can create a little fear in them about losing your valuable service. This is not always so easily done.
The ones who go 30 days are like the cows that wonder way down the road. You have to get the cattle trailer and your horse and your dog to go round that cow up. You either have to find a way to get the cow into the cattle trailer to haul it home, or you have to be very good at using your horse and dog to drive the cow home across roads and through fields. There are lots of ways a recovery mission like this can go wrong. It takes a lot of time, trouble and expense. In the process your customers get a taste of life without your service and may decide to do without you. You also become a pain in their necks because you are working hard to get them current. Even though it is the customer’s fault he or she owes you money, customers can get angry at you about it and go away for ever.
The ones that go 60 days are like the cow that wonders far off into a ravine and gets stuck. The chances are you won’t find it before the wolves do and you’ve lost that cow and any future calves you were counting on. Shame on you if you let someone get this far from your pasture. There are many other companies and priorities competing for your customers’ dollars. After 60 days of not paying you and after 60 days of playing hide and seek with you, it is very hard to get a customer back into your pasture and keep him or her there.
So if we can get them back in the pasture as soon as they stick their heads through the hole in the fence, we win…especially if they are paying a late fee.
Every business will tell you that the attrition rate of people who are 15 or 30 days late is exponentially larger than current customers. So we must do everything we can to keep people current. A late fee is a good way to keep people current. It is a stinging reminder to pay on time. It is also a way to create some revenue to cover the time and effort it takes to manage late payer accounts. There is a lot of expense involved in keeping people current. Doesn’t it make sense that the late payers fund this effort? You don’t want to pass the cost along to all customers. That would punish the ones who pay on time. That wouldn’t be right, would it?
Some ask why we don’t notify customers they are late before late fees kick in. Well, the self storage customer signs a lease agreeing to pay by the first of the month and agreeing to the late fee schedule. It is the customer’s responsibility to pay on time. It is not our responsibility to help a customer pay on time. You don’t get reminders from your commercial landlord or your apartment landlord if you are a day late. You don’t get a reminder from any other creditors when you are a day late and still within the grace period before late fees kick in.
We also make it easy for people to stay current. We accept auto-pay by credit card. We have drop boxes at the properties for checks. We accept pay-on-line and pay-by-phone. When we have made it plain when the rent is due and made it easy to pay, and the customer has agreed to late fees, the customers have no one to blame but themselves if they have to pay late fees.
If we are consistent and thorough about calling people after the first late fee has been charged, we are saving them from having to pay additional late fees. We could just let late fees pile up. But this is counter productive as it lets customers wonder away from our pasture. Additional late fees only cause fear and loathing in your customers and cause them to freak out.
We need to make sure they don’t get far from the fence, so we can shoo them back into the pasture. One late fee is a slight sting and is good training for customers. They will then take it upon themselves to get us paid by the 6th, so they don’t have to pay more than one late fee if any at all.
If we called people before late fees kicked in, then customers would see it as our fault if they were ever charged a late fee, for not tracking them down and getting them to pay on time. This would be a bad situation for everyone.
So look at your late payer handling strategy and make sure you are catching them before they wonder far from the fence and that they get a little stinging reminder to stay in the pasture next time.
Written by Tron Jordheim, Director of PhoneSmart, your offsite sales force. Call Center in Columbia Missouri.
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