Customers and Deposits

Jonny303

Hi,

Looking for opinions. I am running a fairly new self storage company. Everything is going well but things are getting busier and I am now looking at the payment end of things.

The first issue I have is deposits. I look for one months deposit along with the first months storage fee on move in. Some people have a problem with giving me the deposit, but my outlook up until now is "if they have a problem giving me a deposit, do I want them as a customer full stop". Any ideas of other options instead of an upfront deposit?
The reason I want a deposit is two fold.
a. People not paying their fees
b. People moving out on time and leaving me with the cost of clean up

One solutions to this is going the direct debit route. Initially I went to do this but it wasn't looking at being cost effective. But with more customers coming in it may now be the way to go BUT I have been warned by my bank that with SEPA taking direct debits is nearly as safe as taking a cheque and that it is very easy for someone to renage on their direct debit and look for monies all ready taken back. Does this sound right?

All input welcome

duploelabs

Jonny303 wrote: »

Hi,

Looking for opinions. I am running a fairly new self storage company. Everything is going well but things are getting busier and I am now looking at the payment end of things.

The first issue I have is deposits. I look for one months deposit along with the first months storage fee on move in. Some people have a problem with giving me the deposit, but my outlook up until now is "if they have a problem giving me a deposit, do I want them as a customer full stop". Any ideas of other options instead of an upfront deposit?
The reason I want a deposit is two fold.
a. People not paying their fees
b. People moving out on time and leaving me with the cost of clean up

One solutions to this is going the direct debit route. Initially I went to do this but it wasn't looking at being cost effective. But with more customers coming in it may now be the way to go BUT I have been warned by my bank that with SEPA taking direct debits is nearly as safe as taking a cheque and that it is very easy for someone to renage on their direct debit and look for monies all ready taken back. Does this sound right?

All input welcome

Having just gone down the search route about direct debits with my bank, unless you've a very big turnover and go for a full credit check to the value of the projected monthly turnover (I e your rental income) they won't go near you, unless to your clients do a standing order but again that is risky

Bandara

The 8 weeks no quibble refund offered by SEPA was initially temporary and Irish Banks were to revise and discontinue it after a two year period. They of course did nothing of the sort and it remains to this day.

Its a quite terrifying prospect (and most are completely unaware of it) for a lot of businesses

A debtor has up to 8 weeks to demand a refund of any payment made by direct debit for any reason. Yes.. the debtor can walk into their bank and ask for the refund no questions asked. The creditor has no say in the matter, the money paid will be returned to the debtor. This doesn't mean that the debt does not need to be paid. The debt still exists, but that will be of little comfort to the creditor who will have to pursue other means of collecting any payment due.
As an aside, there is still some confusion regarding how this will work for B2B direct debits. A business could become very exposed to risk when 8 weeks worth of payment can be recalled for any reason at any time.

13 month refunds are also still in place;
The creditor will be required to maintain a valid copy of the direct debit mandate. A debtor can claim a refund of any payment made by direct debit up to 13 months after date of payment, if a valid mandate cannot be produced there will be no contest regarding the refund.

I personally would not waiver from your current one month deposit policy. Its far from excessive and you can explain the reasons behind it.

You need to protect yourself.

Jonny303

The client standing order is too much hassle from their end.

The bank have no issue setting me up on the direct debit system but for the reasons outlined above, I think I am as well away from it.

My gut feeling is still "if they can't come up with a deposit (max €200) I can do without them"

Unfortunatly most of my customers are house movers so money is tight but I think you are probably right, its better this way.

ironclaw

You could look at an online solution. Stripe offers the ability to set up customers and take a standing charge at set intervals. Its a very powerful piece of software. You could build a very tidy website, allow people to set their check in and checkout dates, then charge the deposit and the first 30 days. Then take a rolling charge until the end. Would make accounting very easy for you as it would be entirely online and you could even use the same system to keep track of your overall business.

Downside however is you need to build the website, which wouldn't be a huge job, and the Stripe fees but they can be factored in.

Jonny303

I'm currently using stripe to take payments so maybe it would be the right step. I wonder is it possible for me to set up the required information send it to them and then they just fill in their card details for the standing order

ironclaw

Jonny303 wrote: »

I'm currently using stripe to take payments so maybe it would be the right step. I wonder is it possible for me to set up the required information send it to them and then they just fill in their card details for the standing order

Yes, you could do this. Would take a little technical wizardry but you could set up an account and then send them a link. Once they fill out the details, Stripe handles the rest.

Mr Clonfadda

Bandara wrote: »

The 8 weeks no quibble refund offered by SEPA was initially temporary and Irish Banks were to revise and discontinue it after a two year period. They of course did nothing of the sort and it remains to this day.

My understanding of this is that it is European Consumer protection law and is nothing to do with Irish Banks (apart from the fact they have to apply it) and it is a permanent law.

Sage has an option where it has a option to embed a "pay now" button onto Statements or Invoices which links the customer to a screen where they can enter their Credit card details. If i was you though i'd still be looking for a deposit.

antoinolachtnai

In my view, you need to have payments happening automatically.

They need to have a month's upfront, a cc or a direct debit on file, or else there is a month's deposit, maybe longer.

The problem is that if you don't have this, you will just turn spend all your time doing collections (and I am not talking about furniture).

The reason people don't pay isn't that they don't mean to, it's that they just don't get around to it. Then the debt gets old and large, and they can't really afford to deal with it. Eventually the debt is more than what the stuff in the box is really worth. Meanwhile you are left with a load of exercise machines (or whatever) to get rid of.

An additional issue to consider is your customer profile. You may find that you are attracting a particular kind of customer for whom paying a deposit is an issue.

One thing you can also do to soften the deposit requirement is give people a discount for paying up-front.

There are a bunch of arrangements possible. There are bureaus that will do the direct debit part for you. Sentenial/nuapay comes to mind. https://www.nuapay.com/faqs/ .

You can set up repeating credit card payments in various ways, for example https://www.realexpayments.com/features/recurring-payments/

The chargeback problem is real, but it is better to get the money and risk having it taken back than not to get it at all.

Jonny303

Reading there on nuapay. Am I correct in reading that the fee is only €10 per month plus 0.5% transaction?

Ie:

10 transactions totaling €1000 in a month will only cost me €15?

antoinolachtnai

Jonny303 wrote: »

Reading there on nuapay. Am I correct in reading that the fee is only €10 per month plus 0.5% transaction?

Ie:

10 transactions totaling €1000 in a month will only cost me €15?

I don't really know for sure but I would expect it not to be too expensive. The wholesale cost of a direct debit is very low.

Jonny303

Just rang them there and signed up.

I was correct with the above charges.

In relation to the SEPA direct debit charge back, according to sales rep they have had 3 cases among millions of direct debits

antoinolachtnai

I will have to ring up and ask for my commission!

mneylon

Once you're up and running for a while you'll find that going direct to do the direct debits will save you quite a bit in transaction fees.
I'm not aware of us getting any chargebacks for direct debits, though we do get a volume of them for credit card payments.

Jonny303

So the next discussion is then, how to push people towards direct debit.

One way is obviously only accepting direct debit, but I don't think this is a runner.

Discount the monthly fee? Discount the first fee?

I am undecided on both.

I also want to build in a referral payment to try get and get others to sell my space for me (other customers, movers, estate agents) but I think to do this they will need to be able to offer the customer something as well "Have a look at xxx for storage, if you mention me you will get xxx off of your storage"

On this end of things the referral would be straight forward, just a basic payment but I think I would like to keep the customer incentive a low once off payment, rather than a monthly % as this would quickly bite into my margin.

So then to accommodate these payments, do I raise my prices or keep my prices and just treat it as advertisement spend.

Decisions....any input?

antoinolachtnai

Have a look what utility providers do. They often require a deposit if you don't do DD. They might also give a discount for ebilling and DD.

I would pay commission of 8 percent (one month on a 12 month contract) with clawback if customer doesn't stay for duration or doesn't pay.

You could give the customer 'one month free'. You can ponder whether it should be the first month or the last month.

Now your sales cost is 16 percent between commission and discount.

It might be worth paying more, I don't know. It depends what the profitability model looks like. And how competitors play the game, obviously.

How you present all this just depends on what you think will work best. You want something that is simple that doesn't seem like a rip off.

You might be better off doing this in form of vouchers or something. It just depends on the sorts of relationships we are talking about.

One other thing - once you start down this road with commissions it is hard enough to back out of it without damaging relationships so think about it carefully.

Jonny303

Agreed with the commissions.

Most of my tennets would be 3-6 months.

I was looking at the voucher route as a commission (One for all etc).

100% correct, simple is what works. An old man once made a very valid point to me, most people cannot workout how much value a % is but put a £ sign in there instead and it will relate to them instantly. I think it is very true.

One way I was looking at it was if they stay for "X" amount that I give discount off the third month etc, but I find across the public now they're wise to gimmics or anything that looks like a gimmic, they want the best value upfront.

beertons

A few of the landline companies used to charge five euros to customers that were not set up on direct debits. Their excuse was that the bills could go two or three months unpaid and a number of calls would have to be made for payment. NTL used to have the same charge, and the same if a customer only wanted let's say broadband but not the tv package.

antoinolachtnai

It depends how you look at it. One way to look at this is like a hotel or an airline. You understand what the marginal cost is, and you discount all the way down to that marginal cost when demand is low and increase price when demand is high so as to maximise utilisation and profitability.

If you do it like that, there isn't as much room for referral commissions. It's really a matter of figuring out how people buy the service and figure out whether personal referrals or web sales are the most important.

You don't always have to pay for personal referrals either. A referral is more than just a business transaction, it is a token of appreciation from the referrer as much as anything else and it sometimes turns out that the most valuable referrals are not done in return for a direct reward.

Jonny303

So far, I am feeling that personal referrals are getting me good business.

Because these referrals are directly involved in the storage process (DIY shops, estate agents, removal companies) I feel that things are all ready in motion when I get the call.

Referrals from other customers, while a bonus would not really be worth chasing too hard I think.

antoinolachtnai

Yes, they are calling you because they know that you are going to sort out the customer's problem and you are going to offer value for money and a good level of service.

For these kinds of referrals, I'd say the most valuable way to pay them back is to value their opinion by visiting them to thank them and listening to any feedback they have and to refer customers to them.