Corralling collections during galloping costs

March 1, 2008 By    

Well-designed marketing plans, orchestrated pitches to promote budget plan enrollment and established collection procedures for when customers fall behind are being touted as key solutions for propane retailers faced with payment shortfalls.

If your customer base is encouraged to sign on early and make regular, less daunting payments, next winter’s propane can be delivered during the summer months. This helps avoid bottlenecks, long lines at terminals and other logistical setbacks that arise when the snow flies, according to consultant Marty Lerum, managing partner at Propane Resources: “Forget about onsite storage; get storage at your customer.”

Composing collection letters incrementally prepared to match varying past-due time frames such as 10 days, 30 days and 60 days can assist with keeping your own bill-paying obligations in line, he suggests, noting how “operating expenses are skyrocketing” when slow-pays come into play and high-priced propane gets factored into the equation.

At Fraley & Co. Inc. in Colorado, 46 percent of the customer base is enrolled in a budget plan. Company president David Fraley heavily promotes the endeavor during spring and summer through direct mail and local weekly newspaper advertisements. Word-of-mouth recommendations from customers pleased with graduated payments are another element pushing success.

“Having those tanks filled early takes some pressure off the drivers and creates routing efficiencies,” Fraley points out.

He’s already working on solidifying his margins in anticipation of the 2008-09 heating season. “I’ve bought one layer so far, but we haven’t bought a lot for next year yet. I’m hoping for downward movement; this will be an interesting year for buying.”

“We always try to up the percentage of customers that are on the (budget) program,” says Dave Ezell, member/manager of CoEnergy LLC in Oregon. Newsletters continually promote the benefits that customers can achieve. “We’ll have all of our contracts in place by June or July,” he forecasts.

Weathering rough winters

As the winter of 2007-08 transpired, “the biggest difficulty for us is cash flow and our customers’ ability to pay in a timely manner – especially the elderly and those on fuel assistance programs,” reports Mike George, general manager at George Propane, in Goshen, Mass.

“That hurts our cash flow, and we have to get a larger line of credit.”

Payment plans are encouraged, and chronic non-payers are taken to small claims court. George says this technique is much more cost-effective than using a collection agency.

Budget plans have become common in the Northeast, according to Joe Rose, president-elect of the New England Propane Gas Association. It’s simply a matter of retailers having to cover their own bills. “They’ve had to get payment in order to continue to deliver.”

Marketers also are setting themselves up to handle plastic. “A lot of people are putting it on credit cards,” Rose reports. “Credit cards as a method of payment have increased dramatically.”

“I’ve had people as customers for 20 years, and for the first time they are unable to pay their bills,” says Paul Laney, president of Liberty Propane in Crookson, Okla. “We’ve always been cheaper than electricity, but it’s not that way now. The last two winters have been rough.”

Liberty is embarking upon a mass mailing to augment customer participation in its budget plan offerings. “It’s easier on them and it’s easier on us,” Laney observes. “If you don’t start it in April, it doesn’t work for us.”

As with many marketers, Laney is highly reluctant to toss hard-pressed customers from his route. “I feel obligated to keep them on. I won’t drop them.”

A retailer in the South doesn’t even want to be identified as he talks about the amount of people forced to request short-fills, which has been steadily increasing along with the price of propane. “We try not to deliver anything less than 100 gallons, but if they’re a long-term customer we’ll do it for them.”

Pricing pressures have been especially acute in Wisconsin, where bitter cold and deep snow prevails throughout much of the winter months.

“I get calls weekly from retail consumers who are suffering,” says Randy Knapp, executive director of the Wisconsin Propane Gas Association. “Year after year almost all of the retailers who belong to our association are offering these (budget) plans.”

Yet the deals remain a tough sell to consumers. “They don’t want to pay for their gas in the summertime because they want to go camping and they have a satellite TV antenna in their yard: Consumers make poor choices.”

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