Operations

“Just Put It On My Bill.” Where Has Our Cash Flow Gone?

Sara Eastwood
Posted on November 1, 2006

Our new 2007 Fact Book reports that among all operator fleet sizes, corporate work is our number one source of revenue. The “standard” for payment from this market segment is through invoicing clients. Billing has quietly replaced the use of credit cards during the past decade and I just wonder if that is such a good thing for our businesses.

In developing this editorial, I spoke to two chauffeured car services with more than 150 vehicles in their fleets, and a half dozen others that were both mid-sized and small fleet operators. I broached this topic and asked, “Why are we the ONLY ones in the entire travel industry — including airlines, hotels, car rental, and taxi — reconciling our business through direct bills and not credit cards?” This question caught all of these operators off guard because this is something that we just do as part of providing a service. There are large corporate accounts, and some types of businesses, such as destination management companies and hotels, that will require the direct-bill method because your services are actually moving their customers. That makes sense. But by the same token, there are plenty of business travelers out there that have corporate credit cards. If you simply provide a receipt in an expeditious fashion (key issue here), charging their card will not be a problem.

I say this with confidence because I am one of those clients. I have a corporate account with a local operator and procure $5,000 to $10,000 in airport rides per year. If asked to convert from billing my corporation, it would be a non-issue for me to use my own business credit card. The case for accepting credit cards for payment as often as you can is a simple one. Immediate money helps your cash flow. Most corporations pay net-60 days and many now are moving the marker to 90 days. You are shouldering all the expense of each trip upfront (don’t forget to factor in the cost of the accounts payable personnel you now need to manage all of these bills) and likely leaning on a line of credit to pull you through, which is costing you another 7% to 20%.

In financial terms, there’s something called the “time value of money.” This refers to the present value and the future value of your money. Just as money can earn interest for you, it can work in reverse. The longer it takes you to get paid, the less your money is worth. Your own accountant can show you what a trip is worth that is paid two or three months later.

At our fall event, the LCT Eastern Conference, I had a conversation about this with Dennis Adams from Celebrity Limousine in Philadelphia. We were talking about how low the margins in this industry were in contrast to other industries and what could be done to improve them. This led us to start nitpicking the financials (he’s a former Dunn & Brad Street man), at which point the conversation moved onto the subject of encouraging the use of credit cards. He said he was in the process of converting his clients who spend less than $10,000 annually to credit cards, and was encountering relatively little pushback. Others, since I opened this Pandora Box, are doing the same. The name of the game is to make money, right? The billing method has become an easy way to set up accounts. But in doing so, we’ve taught our clients that it’s okay to hold onto our money and let it work for them, rather than us. Let this be a wake up call.

Sara Eastwood

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