When the recession hit, and customers started cutting janitorial and special services, building service contractors realized that they would need to be more diligent about securing the short-term financial viability of their companies. As customers that had never had a problem paying on time started to go past 30, 45, 60 and even 90 days, implemented layoffs or even went out of business, BSCs knew that their game plan had to become a lot more proactive if they were going to maintain healthy cash flow.
The solution, for many, has been to step up research and investigation of customers and to strengthen partnerships through honest communication and a dedication to truly helping customers through a rough financial patch. While the pressure to reduce pricing and make cuts may have been increased by the recession, so was the willingness to let go of customers that had unrealistic service expectations.
"Even long-term clients that historically paid late, in some cases, we made the tough decision to cease operations. We told them that we appreciate them as customers but we must receive payment per the terms," says Sally Schopmeyer, president of Maintenance Inc. in Dallas, and 2011 president of Building Service Contractors Association International.
Financial stability helps to define a good customer, Schopmeyer says. Not only should clients care about quality cleaning, but they should be in a position to pay for services rendered. This allows for a win-win relationship, she says.
"They know that we need to make a fair profit margin, and that we are going to honor our obligations of the agreement," Schopmeyer says.
Certain market sectors, as well, are getting more investigative attention from BSCs than before. Any sector that took a hit in the recession — such as retail or banking — is getting more scrutiny these days.
"I would say banking; FDIC closures of financial institutions have been especially difficult here in Washington state," says Janelle Bruland, president of Management Services Northwest in Ferndale, Wash. "So as we look to work with new prospects, not only banks, we're definitely doing more due diligence."
On the flip side, sectors that have been strong through the recession, such as healthcare and education, are being targeted by BSCs as yielding solid, lucrative accounts.
Prospecting for new customers and bidding on new or old accounts provides opportunities for contractors to be picky about who they do business with — much like how vendors and suppliers are picky about the BSCs they choose to work with.
"Even with respect to our company, if we're setting up a new account with a supplier, that supplier normally asks us for our bank information, our credit history, a list of organizations that we have done business with, to ensure that, quite frankly, they're going to get paid," says Al Berry, president of American Services Corp. in Chester, Pa.
"Organizationally, we ask the same things of a new customer of American Services Corporation, because it's a normal business practice," adds Berry.
Customer investigations might include a Dun & Bradstreet report, credit background checks, annual reports, and reference checks with banking institutions as well as prior customers. This is where having friendly local competitors can pay off.
"If I know the company losing the contract and have a good relationship with them, I'll call the competitor and ask what the potential client has been like as a customer," Schopmeyer says. "Are they fair to you? Do they pay their bills timely? If it's a friendly competitor, they'll usually give you their experience with them."
Investigations can begin as soon as a request for proposal is received. Sales staff typically handles the research end of things. Whereas investigations used to be more for sales and marketing purposes before the recession hit, Schopmeyer says, they are now also used to determine financial viability.
"We wanted to know if their thumbprint matched ours and what their corporate culture was so we could implement that into our sales and marketing," she says. "But during the economic crisis the research really was more about: are there any outstanding lawsuits, what's their financial condition, let's take a look at annual reports, determine if they have a history of slow pay, or if there's speculation they might file for bankruptcy."
With more customers going belly-up and experiencing very difficult financial situations, BSCs have become experts at reading the writing on the wall when a company is not doing well.
"Something that we are doing more proactively is watching our existing customers, especially in regards to accounts receivable," Bruland says. "It's amazing to me how that was not something that I had to pay attention to ever before."
That includes a more open dialogue with customers in which some tough, candid questions are asked, such as: how is business doing and what are your challenges ahead? Additional clues that a discussion needs to happen include recent layoffs, store closures, eliminating product lines, and office vacancies.
"It's a new way of doing business," Bruland says. "You just have to keep your eyes open in regard to your client. If you want your business to do well, you need to be engaging services with clients whose businesses are growing and doing well."
Whether customers are old or new, the true test of their financial viability is whether they are paying their bills, in full and on time.
Billing and accounts receivable are additional areas that BSCs have to watch closely to ensure customers are not falling behind.
For Schopmeyer, payment terms are another big component of investigations. In most cases a copy of the contract is obtained before the work is ever bid. While some customers want to pay 45, 60 or even 90 days out, Maintenance Inc.'s contracts typically allow the standard 30.
"If it's a large contract, but the terms are net 90, that's a major concern for us because we will pay several payrolls before we receive payment," Schopmeyer says. "It could have a serious impact on cash flow. And 90 days is just not reasonable — it's not a realistic payment term. It doesn't matter how enticing the contract, we're not your bank; we're your janitor."
The more janitorial companies allow their customers to extend payment terms beyond 45 days, the worse it is for the industry as customers adopt an expectation for acceptance of late payments, she adds.
The trend toward net 90 is being seen in mega corporations in particular.
"I think we've seen too many major companies file for bankruptcy for those to be acceptable terms," Schopmeyer says. "But more and more janitorial contractors are accepting those terms and that's a problem."
Maintenance Inc. has had to cease operations at accounts for which it was not receiving payment more in the last two years than it did in the last 10.
"It's painful. Not an easy decision to make, but it's one that we do make," Schopmeyer says.
While some BSC provide incentives and/or implement punishments for customers who pay early and those who pay late, respectively, others don't want to give customers that kind of flexibility and freedom to pay outside of ordinary payment terms. It can also be an accounting nightmare, Schopmeyer says.
"If a client has not been very profitable for us — for instance cutting their budget but they expect to have the same services — we've had to gracefully decline and tell them it's best to look at getting their needs met elsewhere," adds Bruland.
While the recession has sent some customers into bidding situations looking simply the lowest price for services, it has also helped to solidify business relationships with other customers that are seeking a service solution rather than a commodity.
Making proactive recommendations to customers on how to help them reduce their facility budgets is appreciated and important to retention.
"It does cut down on our current work, but it strengthens that client partnership. We feel when things turn around for them and they get back to more regular service that they're going to rely more heavily on our partnership because we've been there for them in the bad times," Bruland says.
As the economy starts to pick up again, many BSCs think the worst is over — and having survived through it, contractors are stronger, smarter and savvier about how to maintain a profit in any environment.
Strong partnerships with customers have proven to be one of the silver linings that emerged from the recession.
"The customer partnership is actually stronger today even if we had to reduce our services," Bruland says. "We helped our clients reduce services thereby reducing spend. Rather than a financial reward, it strengthened our relationship and increased loyalty."
Helping customers achieve their goals is ultimately what builds relationships and ensures retention, Berry says.
"The bottom line is that the more we as a service provider are willing to meet with, talk to, and work with our customer base, to achieve their — not our — goals, be it through service or reductions of cost or improvements, the more likely it is that customer is going to retain us," he says.
Schopmeyer thinks that while special services are going to be big again in 2011, partially due to a backlog from projects put on hold during the recession, the reductions to the scope of janitorial work are here to stay.
BSCs shouldn't get so caught up in their own new business or growth that they inadvertently ignore customers. Visit with and talk to customers on a regular basis in order to keep a finger on the pulse of their organizations.
"I really do believe that not only is that the lesson of this recession, I think it's the lesson, period: that the more we interface with the people we do business with, the better off we're going to be," Berry says.
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