Prepayment discounts
Have you really thought about ways to improve your working capital and cash flow?
I caught the latest pisode of Gopher Haul, and Steve made a quick blurb about possible discounts for prepayments. At first I let it pass without paying much attention. However, being slightly different than a sale, this is something I began to think about more and more.
This type of promotion is important for a couple of reasons:
- It benefits clients that you already have.
- It can also improve your cash flow.
Since landscapers and arborists aren’t working with product inventory like a power equipment shop, the opportunity for “clearance sales” or inventory turns doesn’t quite apply. However, you can take advantage of these principles in order to better serve your customers and increase your working capital that can in-turn be used to improve your productivity.
I’ve spoken with a few of my commercial customers about this and it has been fairly common to offer shorter-term discounts. That is, some of the LCOs offered “four weekly mows for the price of three” or discounted add-on services with a mowing contract. Only two of the owners I spoke with have gone as far as asking for a prepaid year and offering a discount for it.
This isn’t for every company as it takes quite a bit of calculation and budgeting, but the reward for doing this correctly means:
- Fewer billing issues (invoicing, mailing, collecting, etc.)
- Increased customer satisfaction.
- A large in-flow of cash at the beginning of the year.
- Decreased costs
Can you imagine the working capital you could have if just a handful of your clients prepaid for an entire year? You can use your cash to take advantage of bulk discounts on materials and chemicals or reach “fleet” status at your power equipment shop. The point is, you now have the cash-0n-hand to make a direct impact to your bottom line.
I plan to do a little more research about the effectiveness and financial aspects of prepaid services, but I’d like to know your thoughts or experience on the topic.
