5 Reasons Your HVAC Business Cash Flow Is Bad
You’re not making enough money from your HVAC business. Or you’re not making as much as you expected. Is this what you’ve been thinking about for a while? Sometimes, it’s a matter of time; any business will go through a period of simply recouping the investment but if you really can’t see the light at the end of the tunnel (or, more exactly, the shiny profit), then you should have a look at these 5 reasons why your HVAC business cash flow is letting you down:
Let’s get started!
They’re not fun to deal with, are they? Whether residential or (more often) commercial, non paying customers are the bane of an office manager’s life. Sometimes it’s a genuine inability to pay, in which case conversation and compromise is a better solution than going straight for the debt collecting agency. However, when it’s a matter of refusing to pay for a made-up reason, a manager needs to be ready.
Ideally, your HVAC business cash flow should never rely on the promise of payment but on actual, solid money you have in the bank. However, as any HVAC manager knows, when it comes to big, long-term projects or commercial work, that’s simply impossible. This is why you need to put in place processes like recording bank details and strong contract terms to deter delayed payments (a favorite strategy of commercial customers).
There’s also the case where customers feel entitled to not pay because they’re under the impression that you’re overcharging and therefore “robbing them”. It’s obviously an unfair accusation, but if you’ve given them a single estimate option with a fixed priced, it’s not surprising they’re feeling like they have no control.
The next logical step is to get some more pricing options from your competition – pricing options that you could’ve offered yourself from the get go.
Projections should inform your “cash cushion” (the cash reserve you keep for rainy days) but if you underestimate overheads, you can easily end up with higher projections and less money in the bank.
Sometimes, the projection might have been correct, but there were a couple of mistakes in the formal quotes you sent off to customers. They’ve already approved and signed for that price so what are you going to do? If you ask them nicely, they might pay this time but you’ve lost any chance of them becoming recurring customers; if you break down their door demanding you get paid a fair price, they have every right to take you to court. After all, it was your HVAC business who sent them the quote, fully aware that it represented a formal contract and not just ballpark figure.
Confidently giving a bad estimate, on the other hand, where you forget to mark up that premium eco filter or forego adding it at all, will enrage your customers too, as they’ll end up with their expectations deceived. There’s nothing that sours a customer experience quicker than relying on a service cost and then having to pay extra.
It’s no wonder then if they feel reluctant to pay or tempted to delay payment. Even if it affects their HVAC business cash flow, most managers would rather write off the cost of a bad estimate, but how long can you keep that up until there’s no money for payroll or office rent?
We all know that instant when we’re getting ready to pay for groceries or local coffee and the nice person behind the counter grimaces as you pull out your fancy new phone with Apple Pay or Google Pay and you can already feel your insides lurch with the knowledge that not only do you not have cash, you don’t even have your card with you. It’s the same with an HVAC technician coming to your house and then saying they only take cash or check.
It’s unlikely there’s an ATM nearby and unexpected HVAC services can be quite pricey, while people don’t keep that kind of money just laying around anymore, not to mention the sheer drudgery of sending a check. This set of circumstances make it ideal for your tech to walk out of the house with only the promise of payment. This is where customer portal software can help!
It doesn’t necessarily mean that these customers won’t pay at all just because you only take cash. But your HVAC business cash flow will suffer because they’ll delay it as long as possible. Many businesses shy away from taking card payments on-the-spot because they fear transaction fees but that’s simply a cost of business that you have to take into account as an HVAC manager.
We’ve talked about it before, how instant payment is much simpler to manage and implement, and doesn’t involve your business handling (and insuring!) large amounts of cash. Not to mention that denying the customers the payment option that they’re most used to is only chasing them away from returning which will impact your cash flow in the future.
Then you shouldn’t be surprised when you have non paying customers. Deposits are a fundamental business practice, especially as you start doing more complex projects. Charging customers part of the service cost in advance ensures you have a healthy HVAC business cash flow and it should cover most of your overheads.
This way, even if something does go wrong and you end up with a pay dispute, at least your business won’t depend on getting paid soon.
Deferred payments are also a way to guarantee your cash flow stays healthy and your customers won’t get upset at the idea that you don’t trust them enough to let them get off without a deposit. After all, if they’ve ever used Amazon, they’ve been charged a deferred payment so there’s no reason to object to having a sum of money frozen in their account.
It’s peace of mind for both parties, as they know their money is safe in their account and you know they’ll be able to pay you when the work is done.
Writing an HVAC invoice isn’t rocket science but you do need to have an admin with a lot of attention to detail (or an automated software to do it for you). You might be thinking “what’s so difficult about it? Just write down the parts and the service cost” but as your jobs get more complex, you’ll find yourself needing an invoice for that deposit we mentioned, another one for retention fees, and then to keep track of the spare parts you made use of. As you can see, it adds up and if your admin is already strained by paperwork and manual scheduling, they’ll miss out on invoice details. If you want to know more about electronic invoices, we’ve written a full guide on them here.
All these errors can seriously damage your cash flow so you literally can’t afford too many of them. Oftentimes, HVAC business managers started out as technicians themselves and don’t always anticipate just how much paperwork is involved in running a business. Having to send accurate invoices on time is a big challenge when it comes to keeping customers happy and cash flow healthy.
The takeaway on improving HVAC business cash flow
What is the one thing these 5 reasons for poor cash flow have in common? Paper. Whether it’s paperwork or paper money, if you paid attention, you’ll have noticed that running a business without a paperless software in place can spell the end in no time. So what does the ideal customer journey look like then? Download the free infographic below and find out!