While the numbers are hard to pin down, the reality is drivers don't make much when factoring out overhead costs.
National statistics show that businesses, on average, aren’t able to collect on up to 10% of their sales at any given time.
The questions then become how can you collect your rightly earned money, preferably without losing the client, and what you can do to avoid delinquent accounts in the first place.
“Delinquent accounts are inevitable; you’re going to have them. But the key to keeping your business growing is impacted by what you do on those delinquent accounts,” says Larry Steller, CEO of Quality Asset Recovery, a debt collection agency based in Gibbsboro, N.J.
Don’t let accounts get out of hand
The least expensive way of dealing with delinquent accounts is, of course, to avoid letting clients become delinquent in the first place.
“Get a credit card for every trip and resist the urge to get business that might look more attractive than it is,” says Tom Mazza, executive director of the National Limousine Association. You might be a little bit more lenient with high-profile clients, but keep their tab under control, he advises.
It is also important to find out if a new client has done business with another limousine company in the past, and, if so, why their business relationship ended, Mazza notes. “A lot of times, the company might say, ‘Oh, we had service issues.’ But you find out they weren’t paying their bills,” he says.
Adds Steller, “The best thing is to have an exact plan for handling delinquent invoices and following it to the letter on every account,” including when friends owe you money.
“If you have a set procedure that’s always followed, and you hurt [clients’] feelings because you ask them to pay, respond with, ‘I’m sorry. It’s our policy,’” he explains. “Or blame it on the bank. Say, ‘Our bank requires that we have a set policy for handling delinquent receivables.’”
Tell them they’re late
“If you have somebody who’s not paying, make sure you secure the debt right away,” Mazza says. “If you have to turn it over to collection or sue them to get a judgment, you’ve got to do that.”
And don’t be embarrassed, he says. “If they are doing it to you they are doing it to other people.”
The first thing you should ask yourself is: ‘Is this a good account that is slow to pay or is someone trying to cheat me?’ That determines how to treat the problem, Steller advises.
Create a policy and follow it
Delinquent accounts are more likely to be repeat corporate or small business clients, since they often don’t pay until billed. Special occasion clients, meanwhile, are usually required to pay up front, most often with a credit card.
If the delinquent account is a “good client” that you bill after the trip, you need to give the client a fair chance to take care of the problem, Steller says.
“You don’t want to lose your customers because they’re a little bit late. Get the bill paid so [they] can go back to being [your] customers, ” the 25-year veteran of the collection industry explains. A client can easily turn to your competitor should you upset him, he adds.
If the delinquent account belongs to a special occasion client – if a check fails to clear the bank or a credit card is denied, for example, and the client can’t provide an alternative type of payment – give the client only one more chance to pay, Steller suggests.
“Make one phone call [saying], ‘Your check bounced. I need you to fix this now. If it’s not fixed in 10 days, our collection agency will get your account,’” he says. “These people are trying to cheat you and that’s something you should let a professional handle.”
Whatever the case, Steller says, don’t bother with interest rates or late fees. Focus on recovering the money that is actually owed you. Additional fees could in fact hurt your chances of recovery since they often upset clients more than they pressure them, he says.
“If you are counting on increasing your income by adding late charges or finance charges, you should go into the banking industry,” he jokes.
Let professionals show you the money
If the letter you sent 60 days after the invoice’s original due date fails to do any good, you should bring in a collection agency, Steller advises.
“People don’t want their account [with a collection agency]; they really don’t,” the collector says with a slight laugh. Your client’s essential bills will always come first, he explains. But a bill from a collection agency is often given a higher priority than non-essential bills, such as charge cards.
The longer the debt is outstanding the smaller is the chance of recovery, he also notes.
Don’t be too quick to sue
“Before I sue I want to make sure there is money available,” Steller says. “It doesn’t do any good to sue anybody unless the court will take the money from them.”
Add to that the cost of filing a lawsuit and the time it takes to get a court judgment, and you are often better off listing the debt on the client’s credit record. That only costs about 25 cents, he notes.
“We list accounts on people’s credit when we determine that we can’t get them to change their priority and pay,” Steller declares. “Then, when they go out to buy a car or a house, their finance company will tell them, ‘We can make you a loan but first you have to take care of this thing on your credit.’ Suddenly they want your bill off of their credit so they’ll call you and take care of their account.”
So when should you file a lawsuit against someone for not paying?
“Once I know the money is available, and I still can’t change their priority – if they don’t care about their credit and just want to hold on to their money – I will recommend to a client that we sue,” Steller says.
He also notes that it is sometimes enough to tell the debtor a suit is being planned to receive a payment.
Bankruptcy only leaves you the leftovers
Steller says there isn’t much you can do to get you money back should a client – corporate or individual – file for bankruptcy.
“Any work you do after [bankruptcy] is a loss of money and time since you’re an unsecured creditor,” he explains. “The best you can possibly get is 10 cents on every dollar they owe you. And that’s if you file hundreds of forms and attend several meetings with the court.
“Receiving 7 cents on the dollar is normal; 1 cent on the dollar is not unusual,” he adds. Instead, you might just want to “Give it up,” Steller says. “Call [the client] and say, ‘I’m going to go ahead and ignore the [money] you own me, but do me a favor; get yourself in better financial shape and the next time you need a limousine, give me a call.’”
“Say, ‘Make it up to me sometime.’ And he will, because you didn’t embarrass him [by] fighting him for money,” he adds.
Prepare to give up part of the recovery
A collection agency either charges a set fee or takes 40% or even 50% of the amount recovered from a delinquent account, Steller says. However, he has made an agreement with the National Limousine Association to provide NLA members with Quality Asset Recovery’s services for 32% of the amount recovered.
That rate is negotiable if an operator can get a better deal from another agency, he notes.
There typically is no extra charge if the agency decides to file a lawsuit, Steller advises.
Debt-Collection Timeline: What to Do When
Larry Steller, CEO of Quality Asset Recovery, a debt collection agency, provides this timeline for dealing with a delinquent account:
* 15 days: Make a phone call. “Say, ‘Is there a problem with my invoice?’ ‘Did you get my invoice?’ ‘Can I get paid right away?’”
* 30 days: Send a second invoice and buy a stamp with red ink that states Second Invoice, a subtle way of showing it’s late.
* 45 days: Make a phone call or send a letter that states, “Your invoice has become delinquent. It’s important that you take care of your balance now. If there is a problem please call our office and we’ll work something out.”
* 60 days: Send a letter that states, ‘If the account isn’t paid in the next 15 days, our policy requires that your account be turned over to a collection agency.’”
High-Profile Clients Draw Attention to Debt Issues
Two recent incidents involving clients’ unpaid bills have served to put a spotlight on the issue of debt management. In one, a high-profile sports client has filed for bankruptcy protection. In the second, an operator has taken another sports client to court.
* Former world heavyweight boxing champion Mike Tyson recently filed for Chapter 11 protection in U.S. Bankruptcy Court in New York, claiming total debts of $23 million.
Among the creditors was CLS Worldwide Transportation, with an unpaid limousine service bill for $308,749.60, according to the Associated Press.
Tyson was a long-time customer with the company, according to the AP.
“We’re confident Mike is going to take care of the bill,” CLS Transportation President Charlie Horky told LCT.
* Deano Herrera, owner of Salt Lake City-based DLSS Transportation, filed suit against former Utah Jazz star Karl Malone to recover what Herrera claimed was an unpaid limousine service bill for $57,912.
The debt was accumulated between 1998 and 2000 and included service to Malone, his family and the Karl Malone Foundation for Kids.
Malone claimed the limousine trips were donated, according to the Salt Lake City Tribune, but Herrera told LCT that argument was false.
“People won’t go after Karl Malone because he’s this big basketball player. Nobody has ever tried to take him on in this town,” Herrera said. “But [my attorney] said, ‘I don’t care who he is. I aint scared of that man.’
Herrera said Malone offered to settle for $35,000 after Herrera went public with the dispute in August. Herrera said he declined the offer.
“He’s got these high-powered attorney teams, so all they’re doing is delaying [the case],” he added. “They think that your attorney costs are going to make you run out of attorney money and give up; they are trying to bleed me right now.”
Herrera said he would settle for nothing short of the full sum, plus attorney fees and $15,000 in interest. Check www.lctmag.com for news updates.
Just Say No If They Don’t Pay
You work with a limousine network and it doesn’t pay for farm-out work in a timely manner. What can you do?
The short answer, operators say, is to stop accepting business from a company or network if you have problems with its payment policies.
That advice, admittedly, can be tough to follow.
“It’s very frustrating; I tried everything,” said Deano Herrera, owner of DLSS Transportation in Salt Lake City, who claimed that one national network owed him $80,000 for referral work he did as far back as a year ago.
“I quit doing their work,” he added. “There are affiliates that string on smaller operators and bleed them. Usually some of those smaller companies go out of business.”
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