Industry experts say dealers have to think about the financial and legal ramifications before deciding to drop a alarm monitoring customer.
Photo credit: (Photo courtesy stock.xchng/johnridley)
Being that recurring monthly revenue or RMR as it is more widely referred to, is the lifeblood of the alarm monitoring industry, having a customer base that pays its bills on time is critical to the bottom line of companies. As with any industry, however, there are always going to be some customers, for whatever reason, that fall behind on their payments or either stop making payments altogether. This has become even more prevalent in areas that have been hit hard by the economic downturn and security is usually a luxury that most people can’t afford when money is tight.
Although each company in the industry is different when it comes to the specific steps they take when customers fall behind on their monitoring bill, they all share some common business practices which include sending letters, making phone calls and even sending customer service representatives to a customer’s home or business.
According to John Spooner, vice president of Aurora, Ill.-based Alarm Detection Systems, keeping a good relationship with customers is paramount and that companies need to do everything they can to work with their clients before they make the decision to disconnect.
"Of course, we’re always looking at ways to secure that customer, keep them happy and be a partner in the relationship," Spooner said. "When we get to a non-payment situation, we give them a 90-day window."
Spooner said that his company will employ a combination of letters and phone calls within that 90-day window to help get the issue resolved, but on the 100th day they will send a notice stating that they will disconnect the customer’s service in 10 days. After that 10-day notice is sent, Spooner said they will send a customer service representative out for a "face-to-face" meeting to see if they can work something out and make one final phone call on the 110th day before finally turning off their service.
ADS has not been oblivious the realities of the recession, however, and has even started a program for customers to help them through tough times.
"If a residential customer calls and says 'I’ve lost my job, I want to disconnect my service or I can’t afford my service,' we’ve done what we call our bailout program and we take and reduce their monitoring rate by two-thirds in some cases, giving them a six-month window with the reduction so they can continue their alarm monitoring," explained Spooner.
Spooner said that ADS is also flexible when it comes to people that are slow on making their payments and that they’ve had to think out of the box during the recession.
"Funds have definitely tightened up both on the residential and commercial side and we’ve had to work with people to get them through these economic times. Instead of taking the cancellation and just cutting off the service and losing that customer, having a compassionate side (with our bailout program) and understanding that people have lost their jobs, it has been a pretty well accepted program on our part and our customers have really appreciated that," he said.
Another company that takes a similar approach to working with customers is Atlanta-based Ackerman Security Systems.
"Certainly, first and foremost what’s on our minds is always making sure we maintain our good reputation in the industry and we maintain good, happy customers because happy customers create referrals," said Ackerman Security CFO Jeff Cohen.
According to Cohen, among some of the things that Ackerman does to ensure quality customer service and there has not been a misunderstanding with a customer’s bill is that they will call the customer between 20 and 30 days after a bill has become past due. The company will make a second call after the bill becomes 60 days past due and prior to disconnecting service, they will make one final phone call and send a certified letter stating that their account will be canceled within 10 days unless payment is made or there has been communication between the customer and the company to work out a payment arrangement.
Cohen said there are important financial implications for dealers when an account becomes more than 90 days past due.
"From an economic standpoint, when a customer’s monitoring bill becomes 90 days or more past due, it is considered to be a non-performing account. A non-performing account has specific implications in our industry," he said. "A non-performing account means that lenders aren’t going to advance monies on that account, so it is no longer of value to a lender and it is also no longer of value to a prospective purchaser if they were ever in the business of wanting to sell it. We also understand what the economic value of a customer is as well and for our purposes, based upon what lenders are willing to lend money with as well as what the valuation of the customer is in the industry of buying and selling, we know that a customer is generally worth between $500 and $800. So, if the amount of monies that is under dispute is greater than that threshold, we’re now going beyond the value of the customer."
One way Ackerman has been successful in keeping many of its’ customers current on their bills, according to Cohen, is through the implementation of an auto-pay policy, which gives the company authorization to automatically debit their bank account each month. Ackerman also has 24/7 customer support, which gives clients the opportunity to call and talk about their bill whenever they need to. In addition, Cohen suggests that dealers do a follow up call after an installation to ensure that everything is working properly and that they’re satisfied with the system.
"Our folks understand that our goal is to do anything and everything we can to retain that client. By the same token if unemployment or underemployment is the cause (of the non-payment)… we don’t burn the bridge, we empathize, sympathize and let them know that we would like for them to consider calling us back when that circumstance changes," said Ackerman President Jim Callahan. "We understand why they’re having to do what they’re doing. We have to cut them off, but we do it in a very amicable way so that it does leave the door open when those circumstances that they may find themselves under change back in a positive manner."
For those dealers thinking about selling their businesses, having too many no-pay and slow pay customers can significantly impact the amount someone is willing to shell out for their accounts, according to Ron Davis, president of Davis Mergers and Acquisitions Group.
"If there are a significant number of slow pay accounts, let’s say 10 percent of the total, that poses a problem in getting the best purchase price for a company. To the extent that a dealer can ease that stress of having a slow pay, it can be advantageous when it comes time to sell the company," Davis explained. "One of the things a dealer can do is exercise the opportunity to give a hardship case a period of time where they’re not being billed. But rather than have a slow pay customer, it sometimes is better to have a current customer that you’ve given a few months of monitoring to."
Aside from the potential impact poor performing accounts can have on selling an alarm dealership, Davis said that dealers must also take other economic factors into consideration prior to disconnecting a customer.
"From a business perspective, the first thing (dealers) have to think about is the loss of revenue. The second thing they should think about is the negative ramifications of dropping a customer and the third thing they should think about is the overall value of the RMR that accrues to the dealer from both the client that they’re dropping as well as other referrals that could be made," he said. "In my opinion, there are very few things that can’t be rectified through conversation and trying to get a reasonable solution to a problem."
Dealers also need to think about the potential legal implications of disconnecting a customer and making sure they’ve done all that is required of them from a court’s perspective before they cancel service.
According to Eric Pritchard, a partner at Philadelphia-based law firm Kleinbard Bell & Brecker LLP, the most basic thing that alarm service providers need to make sure they do is retain their right to discontinue service in the contract the customer signs. Specifically, Pritchard said the text in the contract should give the company the right to terminate on short notice, such as five days, which is a realistic time frame, but not too long.
"Assuming you have that right, I think I would then make a record that you gave the subscriber opportunities to pay and they didn’t," Pritchard added. "Number one, I would have a collection-type letter that went out at some stage earlier on in the process, maybe at 30 days. I suspect that that letter would go probably go regular mail and evidence of mail, in other words having someone testify that they mailed the letter, creates a rebuttable presumption of receipt by the recipient. So, you could go into court and you could testify that you dropped that letter in the mail and it would create an evidentiary presumption of receipt by the recipient. The recipient would then have an opportunity to rebut and take the position, 'hey I didn’t receive that.' Which is really why at the next level, maybe its 45 days or maybe 60 days, you want to send them a letter that is return receipt or certified mail to get the postal service to help you make a record of giving the subscriber an opportunity to pay."
One caveat to the letter, however, is that the dealer has tell the customer that they’re going to cut their service off if payment isn’t made, according to Pritchard. "You have to say this is what’s going to happen to give them ample notice," he said.
Additionally, with regards to commercial fire alarm monitoring in some areas of the country, service providers are also required to notify Authorities Having Jurisdiction or AHJs that service is going to be discontinued.
"That can be a very effective way to get paid because once the AHJ finds out that the fire system at a commercial property isn’t being monitored, chances are the AHJ is going to shut that building down and require a 24-hour fire watch," Pritchard said.
If dealers are also calling customers in conjunction with sending letters, Pritchard said that they also need to keep a record of those calls and include information such as who the customer service representative spoke with on the phone, what time of the day it was and what was said. "You want to be able to go into court if you need to protect yourself and build a persuasive case that we gave the subscriber every opportunity to pay their bill and they chose not to," he said.