What Should An HVAC Manager Do When Customers Won’t Pay For Work Done?
Any business will have to deal with non paying customers at some point but that doesn’t mean they’re looking forward to it. There’s a myriad of reasons why customers refuse to pay and we’ve highlighted some popular ones here. A plumbing business could be dealing with the issue of non-paying customers, but it applies just the same to an HVAC company or an electrical contractor. This begs the question: what should you do as the manager when a customer won’t pay for work done?
A. Preventive steps
B. Reactive steps
In the HVAC industry, knowing the difference between estimates and quotes can improve your cash flow and help prevent customers from not paying for services. An often cited reason for refusing to pay is that the final cost is too high and the customer argues that they never agreed to it in the first place. This is where estimates and quotes can help!
An estimate is an informal price, a ballpark figure if you will, that HVAC technicians (or any other kind of tradesman) can give customers prior to starting the work. The key difference is that a quote is a signed agreement that is legally binding to both parties: the customer has to pay the sum and the HVAC contractor can’t charge more or less, regardless of the final cost of the service. Obviously, if your quotes are not accurate, then you’ll end on the losing side regardless: too high and customers won’t accept to sign them, too low and they’ll jump on it and the extra costs will have to come out of your own pocket.
It’s essential to make sure your estimates and quotes are accurate, sent on time, and easy to sign. The best way to do that is to use a specialized software that’s designed for HVAC or field service businesses to help them clearly present information to the customer. This way, your technicians could easily use an existing parts database and add even the most obscure ignition controller or electrode, or simply pull out an estimate template for more generic jobs. They would then create a quote on the spot, attach images (or even videos) to it, then email it and get it signed off. All of that in the span of just a few minutes! It (literally) pays to be paperless! If you’d like to know how easy it is, we’ve written about 3 quick and painless steps you can take to become paperless!
Ideally, they’d show a couple of options (cheap, reliable, premium) then the customer would sign off the one that suits them. This way they know what they’re paying for and (most importantly) they feel in control of the process. This significantly increases the chances of them paying on time.
If in doubt, never be afraid to ask for a deposit! Some managers feel like deposits alienate customers but with so many people shopping online (and, therefore, paying for a product in advance), they shouldn’t stand out at all as a weird business practice. Loyal, existing customers will understand that it’s part of keeping your HVAC business cash flow healthy and, since they don’t plan on refusing to pay, they’ll happily pay a deposit now, then enjoy receiving a cheaper invoice later.
What is a reasonable deposit to ask for? Well, that depends on the total cost of the work. If it’s a large project that involves numerous or expensive parts (or both!), 50% would be a fair deposit amount. But if it’s a small, routine job, you could charge the full amount as payment upfront (and deterrent for no-answer situations) or 75%.
Ideally, your software would send an automatic partial invoice that can then be reconciled with the final one, which helps to reduce frustrating and time consuming payment errors later on.
However, if a deposit doesn’t appeal to you, then how about…
When you use good estimates and quotes software, you can be confident in how much you should charge your customer. This means that you can use a deferred payment strategy to ensure you won’t end up with people refusing to pay for work done. Customers will simply have the full amount frozen in their account, they’ll still be in control of their money but you’ll be able to rest assured that they do have the amount necessary available to them.
Afterwards, with a paperless software, you can mark the work order as done and the system will do the rest for you: it sends the final invoice (reconciled with the partial ones) and “cashes in” the amount, using the securely recorded payment information.
Recording payment information sounds, at best, like a hassle and, at worst, like an invitation to get sued. But the fact of the matter is that there are easy ways to record customers’ details via payment software that keeps their data safe and your cash flow… well, flowing. If you’re using a more complex HVAC customer database, you can record this information and attach it to the customer profile. This will make things easier for the customers too, as they won’t have to input their payment details next time they use your service.
Unless you’re just starting your HVAC business and have no customers, chances are that you’ve skipped some of the preventive steps we outlined above. Worry not, there are a few reactive steps you can take to decrease your chances of customers who don’t want to pay for work done:
It seems pretty basic but some HVAC companies seem to do their best in trying to make it as difficult as possible for customers to pay them. Only accepting cash or, worse, checks, is a hassle for customers who aren’t used to carrying cash around anymore (or, in any case, not hundreds of dollars) let alone a check book, and it’s a hassle for your technicians who need to wait for people to get to the nearest ATM and take money out, then fiddle with change, and, finally, drive around with a pile of cash in their truck until they’re able to run back to the office or bank and deposit them.
Worst case scenario, the customer has to mail you the cash which means you should get ready to wait for a while before you get paid. Having a customer portal software to help makes all this hassle redundant. At the end of the day, most customers don’t hire your HVAC business with the intention of not paying you, but if you try too hard to make it difficult, you can be certain they’ll be tempted to become non-paying customers.
A digital invoice portal lets customers pay on the spot and on their own terms. The fact that a payment link is automatically sent with the invoice email also means there’s no chance of your admin forgetting about it and then delaying payment further. In addition, this can alienate customers who assumed you were reliable enough to send such important documents to in the first place.
If you’re learning how to write an HVAC invoice, make sure you don’t forget to add a deadline too, rather than simply writing “payment due upon receival”. 14 days is reasonable, although, particularly with commercial clients or large projects, 30 days could also be justifiable. However, it’s recommended that you negotiate these payment terms in advance with your commercial partners to make sure that your cash flow doesn’t dry up.
This being said, if the customer exceeds the payment deadline, you should try getting in contact with them at first, via phone and email. If there’s still no sign that they plan to pay their invoice, then a formal demand letter is in order. This means you can send one approx. 20 working days from the invoice receival.
Never send more than 2 demand letters. By that point, the customer has probably decided they won’t pay willingly. Contact a debt chasing agency or seek legal advice. This being said, make sure to voice your letters in an understanding manner, assuring the customer that you’re willing to discuss the matter with them and find out what makes them unable to pay then see if there’s any compromise you could reach that would suit both parties.
Depending on how much the customer owes you, it might be more expensive to chase the debt than to write it off. Most HVAC managers do end up having to wave some jobs because it’s too much of a hassle to get the customer to pay but this should only be done sparingly and as a last course of action. It’s one of the main reasons why companies end up making much less than the industry average.
Wave too many fees and you’re bound to have a bad HVAC business cash flow which is why taking the aforementioned preventive steps is best. Why struggle to put out a fire when you can easily stop it from ever happening?
The takeaway when customers won’t pay for work done
Many debts and customers who won’t pay for work done come from the fact that HVAC companies don’t establish the correct processes to prevent these issues or are simply overwhelmed by the sheer volume of work they have to do. A company that relies on paperwork and cash money will find that it allows for an endless number of loopholes through which money can easily leak out. By going paperless, not only will your customer journey improve (which encourages positive experiences!) but your team will also have an easier time managing the work.
Not sure? Download the free infographic below, comparing the process of running an HVAC company (or any other service business) with and without digital tools. Then, you can decide for yourself which one is the best!