September 14/21; Volume 30/Number 7
By David Romano
Why should you collect labor bills daily if installers are paid once a week? Who in their right minds would want to chase down subcontractors who are not the best with paperwork to begin with? I have worked with more than 1,300 flooring retailers over the last 12 years and was an operating partner of four flooring companies—those of you who do not collect labor bills daily are putting an unnecessary burden on your company.
What would you think if you found out that when you swipe your credit card at Walmart or Target it waits up to seven days before sending its batch off to its processing company? Would you think this system is crazy? The truth is many invoicing and collecting systems in a flooring company are very similar. If you collect labor bills on Wednesday to process payroll for Friday you would have the same receivable issues as Target and Walmart. Jobs that were completed last Thursday would not be job costed until next Wednesday because you need the labor on the job to accurately apply cost. This means the receivable would not be recorded until seven days later and the collecting process would then begin.
I realize some dealers have the installers collect checks while others have a credit card on file that they charge the same day or one day prior to installation for any balance due, and a handful collect 100% of jobs when sold. All of these tactics appear to be sound practices when your business is 100% retail, your systems are always followed and your installers don’t mind being bill collectors. But what about commercial, new construction, multi-family or insurance jobs?
The concept of collecting labor bills daily is very straightforward: The quicker you collect labor bills, the quicker you can job cost and invoice customers or collect the receivable.
According to a substantiated survey conducted by Benchmarkinc in which several hundred flooring dealers participated over a three-year period ending in 2013, independent flooring stores that collect labor bills daily:
- Have a sales volume over 60% greater than those who do not ($4,002,076 vs. $2,497,024)
- Receivable were 4.2 days less
- Receivables over 90 days were nearly 24% less
- Bank debt was 13.7% less
- Cash was 33.4% greater
- Owners took home $18,689 more per year
Furthermore, collecting bills daily will level out your monthly closings, resulting in a more accurate picture of your financial performance. Delaying your monthly close until the end or middle of the next month will be reduced if not eliminated.
It is also much easier to manage the spread between the labor cost listed on each original work order and the individual labor bill turned in vs. all jobs performed over a seven-day period.
Getting installers to turn in labor bills daily may present a challenge, but most people can adapt to change when the new system is well defined and the implementation is consistent. The rule should be simple: When installers come to the warehouse to pick up materials for a job, a labor bill is collected for the job that was completed the day before. Some exceptions may apply such as an installer who is on a multi-day job and doesn’t need to return to the warehouse every day. In that case, labor bills are collected according to the progress billing schedule or when the job is complete.