Networking Pros & Cons: Increased Business & Slow Payment

Posted on May 1, 1993 by LCT Staff - Also by this author

Operators grapple with inflexibility; formal networks answer complaints.

 When Chuck Bradway of Bradway’s Limousine Service in Springfield, MA first became an affiliate of Carey International, he anticipated a large increase in business. After 13 months in the network, he decided he wasn’t making enough money as an affiliate and it took too long to get paid. Bradway dropped out.

Other operators can avoid this type of disappointment by thoroughly researching any network they plan on joining. While networking can take the form of anything from meeting people at the annual L&C Show and agreeing to do business with them to joining a formal network, operators should investigate any situation as best they can.

Before joining a formal network, operators should find out about payment policies, quality of other affiliates, and business practices policies. There are many pros, including increased business and national recognition, and cons, such as late payments and problems with exclusivity, to any type of networking. By doing research, operators can find the best options for their companies.

Understand Payment Policy

 “Networks will never be able to increase the time it takes to reimburse the affiliates because of the third-party collections. We simply can’t collect the money any sooner. Our clients feel they are entitled to a certain grace period before they remit their payments,” says Scott Solombrino, president of the Dav- El Chauffeured Transportation Network.

Every Dav-El affiliate agreement specifies a 90- to 120-day waiting period before the affiliates will be reimbursed. “We don’t do business with any operator who doesn’t know the. terms. If they don’t accept the terms, they shouldn’t enter into the agreement,” he adds. One solution to the extended payment period that Dav-El is looking at is a new computer system. This will tie all network affiliates into the same computer network. Dav-El has been working on creating software for some time and hopes that when it is on-line, the billing cycles will be drastically cut.

Carey International also specifies a reimbursement period for its affiliates and licensees in its agreements. “Carey strictly adheres to a payment policy to its licensees that is on the 15th of every month, 45 days after the closing of the previous month. It should also be noted that Carey only centrally bills approximately 15 percent of its system revenues, with the balance being billed directly by each of the licensees,” says Don Dailey, president of Carey International.

While these payment periods tend to be suitable for larger operators, those in smaller markets often financially can’t afford to wait for their reimbursements. “Corporate America is so slow to pay that it takes a long time for that money to filter down. That hurts everyone. The small operator can’t afford that. In New England, we don’t have the resources to float the payments,” admits Bradway.

One of the reasons Alan Fisher of London Livery, Ltd. in New Orleans, LA dropped out of the Dav-El network after almost eight years was also due to the slow reimbursements. “You shouldn’t have to wait for more than 60 days to get paid, unless you have worked out something in advance. Otherwise you are just financing someone else’s operation,” he says.

Finding Solutions

Some of the newer networks are realizing that to be competitive, they need to come up with answers to this age-old problem. Manhattan International Limousine Network had been trying to convert to an all credit card system. With this payment system, all client transactions would be paid for with a credit card. If the client didn’t have a credit card, the affiliate who referred the business would be the one responsible for putting up the credit card and the client would be billed.

The problem that Manhattan found is that the majority of its corporate clients refused to pay by credit card. “Many large corporations can’t afford to pay their own bills. They need that grace period they get when they are billed. Since the New York headquarters feeds the majority of business into the system, we were the ones left with the bills,” says Ed Martinez, director of operations for Manhattan.

Manhattan is now looking at other avenues to replace this system. The network is focusing on helping its affiliates generate more business “Right now, we are trying to keep our payments on schedule—at 30 to 60 days,” he adds.

Another new network that is trying to solve the payment problem is AirComm. This network has been in business for three years. “The majority of those three years has been spent on research and development. We have only been sending clients to affiliates for the past three months,” says Lou Vasta, national affiliate director. “The affiliates all handle each other as corporate accounts. They have all established credit with each other. We have been paying within 30 days, even though we are contracted for 60 days. We pay by 60 days whether or not we get paid by our clients.”

Have Realistic Expectations

Operators who join a network expecting a huge influx of business are often disappointed. That was the case with Bradway. “I estimate being a Carey affiliate increased my business between $40,000 and $50,000 in the year 1 belonged. For everything I made over $20,000, no matter who generated that revenue, I was responsible for paying Carey a 7 percent advertising fee. Plus, I was paying for the franchise on a payment plan. The revenue I was getting from the network wasn’t supporting what I was paying them,” he says.

Fisher, on the other hand, didn’t join the network simply to get more business. “I originally joined to build relationships with other operators. I wanted to learn from them. I was never made any promises about how much business the network would give to my company,” he says.

Art Squires of Southwest Carriage Limousine in Houston, TX was one of the original Dav-El affiliates. He joined the network in 1976. He explains, “I joined because of the impression I had of David Klein. He was very concerned about each of his clients.”

Squires, who left the network in 1991 partly due to the payment problems, believes there are definite reasons for operators to join these national networks. “I never regretted joining the network. There is no harm joining a network as long as you understand the pros and cons. A company that is just starting out needs the amount of business and the quality of clients a network can generate. Once your company becomes established, though, you don’t need the restrictions to your business. The main reason I left the network was to make my service available to everyone. I wanted to get my clients the best service. I got exactly what I bargained for when I joined, but it was time to move on,” Squires explains.

Exclusivity is Problematic

Another reason Squires and other operators cite for dropping out of networks is the exclusivity they must adhere to when sending their clients to network cities. “Your clients don’t get the same service in larger markets. The chauffeurs realize their livelihood depends on their regular clients, not the guy from Houston they see only once,” he explains.

Fisher agrees, “There is no quality control on a company level from the network. Some networks try to be too possessive and don’t look at what’s important. You are only as good as your last job.”

Exclusivity is almost always part of the network agreement though. “All of our licensee arrangements have a non-solicitation agreement—and I think we are justified in doing that. We want our affiliates to promote each other. You would never see the Sheraton Hotel in New York recommending the Hyatt in Los Angeles,” says Solombrino.

Dailey agrees, “Belonging to a formal network is a serious business commitment. Before joining a network, the operator should satisfy himself that the network and those belonging to it meet the same standards that he upholds himself. At Carey, our requirements to become a system member are very stringent. Further, we require the prospective system member to look at us with as critical an eye as we look at them. Our system members work within the system with confidence.”

Now that Squires no longer belongs to any formal network, he still finds the need to work with operators in other parts of the country. Before he will do business with any company, he will fly out and examine each operation. “I have four companies in New York that I do business with. I’m not exclusive with any company,” he admits.

Both Fisher and Bradway are currently working with the Music Express Affiliate Network. “You try to use the best company in each area and try to establish relationships with those people,” says Fisher.

Do Your Research

 “Don’t be so concerned about the amount of money the network can give to you. Scrutinize them from every angle. Don’t be concerned that if you don’t join right away, they will go to someone else. You need mutual respect on both sides,” advises Squires.

Anyone who is considering joining any network needs to ask as many questions about the operation as possible. Most importantly, ask about the payment policies, service guarantees, and business practices.

Bradway advises potential network affiliates to talk with operators who have dropped out of the network. “Ask both operators who are in the network and the ones who got out. Ask all the questions you can and double check everything,” he adds.

Fisher suggests operators call no less than five to 10 affiliates. “Find out the credibility of those who run the network Do they deliver that they say, when they say it?” he questions.

Once an operator has thoroughly examined the networks he is interested in joining and signs up, there are many benefits he will find. Most of the major, formal networks have national sales teams, group purchasing programs, computer software, leasing programs, insurance programs, centralized reservations, and many other programs.

“Many large corporations have become centralized during the recession. They want to work with a transportation company that can handle their needs across the country. Operators need to be a member of a national network for that to benefit them. A smaller operator will have a hard time surviving on the national level if he is not in a network because of this,” predicts Solombrino.

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