Improving Cash Flow: Net 30 Invoicing vs. Charging Card On File for Home Services

Cash flow is the lifeblood of any business, and for companies providing routine home services, ensuring a steady flow of cash can make a huge difference in operations and growth. One significant way to improve cash flow is by rethinking how you handle invoicing. Today, we'll look at two popular methods: net 30 invoicing versus charging a card on file for each service. By switching to a system that charges cards on file routinely, home service companies can benefit from faster cash flow and reduce the risk of losing money from unpaid invoices.

Understanding Net 30 Invoicing

Net 30 invoicing means that once you provide your service, you send an invoice to your customer, who then has 30 days to pay. This system works well for many types of businesses, but it has some drawbacks, especially when you’re providing services on a regular basis.

Pros of Net 30 Invoicing:

Customer Flexibility: Gives customers time to manage their cash flow and budget.
Monthly Billing: Simplifies the billing process to once a month.

Cons of Net 30 Invoicing:

Delayed Cash Flow: You won’t see the cash until up to 60 days after the service is provided, as you bill monthly and customers have 30 days to pay.
Risk of Unpaid Invoices: If a customer fails to pay, you might have already provided several services without payment.
Administrative Overhead: Tracking and following up on unpaid invoices can be time-consuming.

The Case for Routine Card Charges

Now, let’s consider switching to a system where you charge a card on file for each service. This method can significantly enhance your cash flow and reduce the administrative burden of chasing unpaid invoices.

Pros of Routine Card Charges:

Immediate Cash Flow: Payments are processed routinely (weekly, bi-weekly, monthly, etc.), ensuring a steady and predictable cash flow.
Reduced Risk of Unpaid Invoices: With a card on file, you can stop services immediately if a payment fails, reducing the risk of accumulating unpaid receivables.
Less Administrative Work: Automating routine charges means less time spent on billing and following up on late payments.
Smoother Payroll Management: You can pay your crews with the exact funds they generated from recent services, helping to smooth out cash flow for payroll.

Cons of Routine Card Charges:

Customer Resistance: Some customers may prefer the flexibility of net 30 invoicing and might resist routine charges.
Card Declines: Occasionally, cards may decline, requiring immediate follow-up to secure payment.
Credit Card Processing Fees: While there are fees associated with processing credit card payments, the benefits of improved cash flow and reduced lost receivables generally outweigh these costs.

Practical Example: A Lawn Maintenance Company

Imagine you own a lawn maintenance company providing weekly services. Traditionally, you might have used net 30 invoicing, billing customers at the end of the month for all services provided. While this gives your customers flexibility, it also means you’re waiting up to two months to get paid and risking several weeks of unpaid work if the customer defaults.

Switching to routine card charges can transform your cash flow. Each week, after completing your service, the customer’s card on file is charged. If the payment fails, you can pause services until the payment issue is resolved. This not only ensures you’re paid for the work you’ve done but also minimizes the risk of losing money from unpaid invoices.

Speeding Up Cash Flow

By charging routinely, your cash flow becomes more predictable and immediate. Here’s how it can make a difference:

Regular Revenue Stream: Routine payments mean you have a constant flow of cash coming in, making it easier to manage your own expenses and plan for growth.
Improved Financial Stability: With less money tied up in unpaid invoices, you can reinvest in your business, whether that’s upgrading equipment, hiring more staff, or expanding your service area.
Better Customer Management: Customers who pay routinely are less likely to accumulate large unpaid balances, reducing the stress and time spent on collections.
Smoother Payroll: Having funds from routine charges allows you to pay your crews promptly with the money generated from their recent work, ensuring smoother payroll management.

Reducing Lost Receivables

One of the biggest advantages of charging a card on file routinely is the significant reduction in lost receivables. With net 30 invoicing, you might not realize a customer is unable or unwilling to pay until it’s too late, and you’ve already provided several services. By charging routinely, you’ll quickly identify payment issues and can stop service immediately, preventing further loss.

Other Businesses That Could Benefit

While this example focuses on lawn maintenance companies, many other service-based businesses can benefit from switching to routine card charges. Consider these industries:

Cleaning Services: Regular cleanings can be billed routinely to ensure consistent cash flow and reduce unpaid invoices.
Pool Maintenance: Pool services are often performed regularly and can benefit from the same cash flow improvements.
Home Health Care: Routine billing for home health services can help manage the financial stability of your operations and ensure timely payment for care providers.
Pest Control Services: Regular pest control maintenance can be billed routinely, providing consistent cash flow and reducing the risk of unpaid invoices.
Fertilization/Weed Control: Scheduled treatments for lawn care can be billed routinely, ensuring timely payments and reducing the risk of unpaid services.

Switching from net 30 invoicing to a system where you charge a card on file for each routine service can greatly improve your cash flow and financial stability. This approach not only ensures faster cash inflows but also reduces the risk of losing money due to unpaid invoices. While it might require some adjustments and customer communication, the benefits to your business’s bottom line can be substantial.

By implementing this change, you’ll enjoy a more predictable and steady cash flow, allowing you to focus on what you do best—providing excellent services to your customers.