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Conquering Club Collections
The Fulfillment Relationship
This is usually the deeper relationship based on the fulfillment of the customer's wants, needs and desires.
"First purchases are emotionally based; Repeat sales are value based."
This relationship is an ever changing experience between the customer
and the business.
Consequently if you mail out bills, you're not going to get that money until the customer gets around to actually paying the bill. There's none of the huge advantage EFT that provides you payments as quickly as possible for those people who have it in their account.
So figure step one is sending your bills through your EFT. If it bounces or gets returned, the customer should be sent a letter or a phone call entitled a "routine reminder" or "oversight letter". It says "Sorry, but your EFT didn't go through. I'm sure something technical happened or our payment crossed. Could you please take care of this? And be sure to cover the $15 rejection processing fee." And this could be done with a letter or quick phone call.
Going back to our philosophy that speed is what's important, the longer you wait to respond to a problem, the less likely you're going to get your money. So an immediate response to a rejection with a penalty is critically important. When you send your EFT through the second time that month maybe it's 15 days later let's assume it doesn't go through again. At this time, you need to utilize the second-stage phone call and/or letter. It's more personalized: "Dear Mr. Jones, we've sent your EFT through two times. There's something wrong and we need to get to the bottom of this. Could we set up a time for us to discuss it?"
Define the fact that there is a problem. There have been two rejections, but you're not letting it go. You've stayed on top of it. Let's assume you get into the second month and you still the EFT is rejected or their bill otherwise remains unpaid. Time for the stern warning letter. To state in no unclear terms that without response, their membership will be terminated and collections will begin.
For a lot of clubs, it's realized that this seems to be compressing the process. But remember one of the foremost rules: the longer you wait, the less likely you're going to get action. That's because the position of the payer is all-consuming: "I'm late with my health club payment, but I'm also late with my car payment, dues to the Kiwanis and I'll probably be late with my rent as well. Why should I give them any special consideration?"
Because you use a system that keeps your dues a priority.
The squeakiest wheel nearly always gets paid first. People who don't call them are obviously more tolerant that may not be accurate, but it becomes the debtor's perception. After the second month, send the level-three special "Mail-O-Gram". 15 days later, it should be turned over to collections. The collections people will then initiate a "terminal level" set of procedures: letters, phone calls, and everything else take it right down the line with legal action perhaps lying at the end.
Don't be afraid to follow your process. Be encouraged to modify this a little bit based on your particular billing system and cycles, but do not in any way, shape or manner feel bad about collecting the money that is your due for providing your product or service. It should never be let go. That is a sure way to fail.
Collecting Your Money
Whose responsible? Whose responsibility is it to collect the club's money. Should the salespeople be involved in the process? Should the manager be involved? Or is it better that there exist an independent person in the club with the solitary role of collections?
It may not be such a bad idea for the salesperson to be involved. After all, following their procedures like the Tel-Trac system, they already should be making their phone calls; they should have already developed a strong relationship with the clients they've sold.
And when they've developed the relationship with the clients that haven't paid and it shows up on their collections list, the salesperson can call them up and ask, "Hey, Bob, is there a problem? Is there something I can do? We need to get this taken care of." That ties the salesperson into the personal pocketbook reality of Hey, if I don't collect my money, I don't get my commission!
This is especially true with commission bill-back systems. In this club procedure, if the membership hasn't been paid within the first 90 days, there's a charge-back policy on commissions. Commissions are only paid after the actual monetary transaction of a real sale. If the person hasn't paid in 90 days, salespeople should be charged back for 100% of the commissions received on that false sale.
A part-time collections person may be preferred.
This should not be the manager or owner. The system should be such that the part time collections person uses a simple, straightforward process (we'll delve into particulars soon) where they do nothing but straight collections. And it's probably not a bad idea that after the salespeople finish their initial processes, they was their hands of it by turning it over to this mini-collection department.
This could consist of just one person, two hours a day, four days a week; no need for multiple staff unless you have a multi-club operation with large clubs. Give the collections person an hourly wage plus a percentage of what they collect. The reason you should be willing to offer them a bonus percentage is, one more time, because the further away from the first billing date, the less likely are they to pay. Almost every club, except for the very smallest ones, should have some kind of a person performing that process.
Speaking of Your Membership
Clubs have a one-year membership agreement.
One of the advantages to having a membership agreement over a length of time rather than a cycling month-to-month, are strictly defined guidelines that says if you don't use the club, you still have to pay for it. That should be very well-defined. This is a membership that's paid monthly even though they have a year or two obligation.
It's not dependent on their discretion as to whether they are using it or not. Likewise, all of your payment policies should, in some way, shape or manner, ought to be represented in your agreement and/or a supplement that's handed to new members and strictly defines club collections policy. Spell out any termination policies.
Such an "About Your Membership" sheet ought to be built into the agreement's rules and regulations. It ought to be given personally to the new member and actually signed off on. There's no coming back with "I never thought was joining for a year!", "I never said I was going to allow you to do this, that or the other thing!" Not when simple fact exists with the member's signature that we gave you the sheet and this is exactly what it said.
Yes, it sounds admittedly harsh, but there's been too many occasions over too many years and experiences where some disgruntled people try to ditch by claiming ignorance. Be very clear up front. Give them the specific rules on the specific processes. They may have thrown away their copies months ago. The club has the original.
Securing Your Money
EFT Security System
Back a member's EFT obligation with their personal credit card. This may prove reassuring if you suspect a very bad credit rating or where the member may want to make a lot of point of purchase sales like pro-shop products, t-shirts or sodas.
Everything may be going on EFT in the first place, but if the EFT doesn't go through, you can automatically fall back on his credit card. This is an easy, effective backup EFT security system. Make it standard policy.
First & Last First
Another security tool is collecting first and last month's dues at the time of sale. It works for apartments and it works for health clubs. Paying first and last month's fee at least covers you if members disappear after 30 days.
60/90, not 30
Instead of 30-day cancellation notices, have a 60-day cancellation notice. A Texas club actually uses a 90-day cancellation notice. And for those in areas that don't allow 1-year contracts because of bonding issues and so forth, you might prefer to adopt a 90-day cancellation policy.
Meet the Parents
When dealing with a student or young person from 18 - 20 years old, insist that a parent co-sign the membership. Once again, it's only fact that we've seen a lot of younger kids without a full understanding of financial responsibility and pay. With parents signing off, you can bet they're going to explain to their kids, "Look, I'll sign, but you gotta pay. If I have to get out the checkbook, I'll sign it on your hide."
It All Starts with the Salesperson
A good collections process starts with an educational process as well, one that begins at the time customers buy their memberships and sign their agreement. Clarify your fee collection policy. Make sure you have the "About Your Membership" sheet previously discussed. That contains all the info, from your fee collection policy, to 60-day notices and penalties. Outline what will happen if they don't pay, that they're still responsible for their membership even though they might be suspended or even terminated until they do pay. This defines payment expectations.
Learn From Magazine Renewals
You should avoid paid-in-full memberships. The ideal is to have 90 to 95% of your memberships as EFT because it smooths out the cash flow, but you'll have 9 to 10% of your memberships on paid-in-fulls. You start to get any higher than that and you're going to hurt your cash flow.
But even if you have 10%, that means you're going to have renewals. And magazines really have that down pretty well. It's really difficult to get people to renew for magazines, so they start 90 days out. 30 days after you start to subscribe, they send you a "special" renewal offer of one more year. Emulating this in the club business can pay off.
A person pays $49.99 for a one-year membership; 30 to 60 days later, promote a renewal special for the next year. "Take that next year now and save $100, $150, maybe up to $199 on your second year." The nice thing is that you're now getting them for two years even though there's a slight discount. It's still going to significantly increase renewal percentages.
Our industry experiences renewal percentages less than 40%. That means 60% of all paid-in-fulls drop out. Not a healthy number. It also means every two years or even sooner, you're replacing your whole membership.
If they choose not to take a 90-day renewal, (perhaps 30% of renewals will like that), then the same process gets repeated with a 60-day renewal special, a 30-day renewal special; down to a Last Day renewal program at which time their membership becomes canceled on the day of their anniversary.
These renewal programs consist of a series of letters, flyers, and phone calls. People are busy. It's hard to get through. Remember the CMS Clubdoc rule: communicate five different ways. Don't expect to send out a single postcard and expect it to happen. You need to post it at the club, put out flyers and brochures, mail postcards and, most importantly, have a phone call and/or renewal meeting with the member themselves. "I'll call to set up a meeting and discuss next year's membership".