A good idea about billing

When we set up billing for our business (mostly monthly, via credit card), in the beginning, we originally billed for the day the sale was made, and simply set up recurring billing monthly on the date it was sold. This was fine for a while, as we only had fifty clients and there was a little trickle of capital every day. Every once in a while, a card would decline, and we could call the client to rectify the failed billing. It was usually a lost, stolen, or compromised card. Declines ranged between 5% and 8% of all billing, and would occur randomly because the clients’ recurring billing was on the same numerical date month in and month out.

Well, imagine how that looked when we reached 1500 clients. About 90 failed cards a month, coming in randomly on any given day of the month. Our first inclination was to place all recurring billing to the 15th of the month, and that way, all billing was done on the same day, and we could deal with them all at once. However, clients we sold at the very end of the prior month (say, the 28th, 29th, or 30th) started calling in rather upset when they just paid for the first month of service and then were billed just two weeks later, which is of course completely justifiable. That’s when we came up with the “8th and 23rd” phenomenon.

Any client who was sold on the 1st to the 15th of the month was put on a recurring date of the 8th. Clients who were sold on the 16th to the 31st were placed on a recurring date of the 23rd. In addition to truncating the failed billing issue to just two days a month, the minimum distance between initial sale and recurring monthly billing was twenty-three days (sold 15th, recurring 8th), more than enough time for the client to feel justified in being billed again. Clients who were sold the first, for example, actually went 5 weeks before their first recurring billing.

Changing our billing this way cleaned up a number of things. As aforementioned, for the client who was sold late in the prior month, we found a way to not have to set up recurring billing on the 15th whereas they would feel cheated out of half a month. Conversely, and this was actually an unintended "bonus" benefit, our salesmen stopped "sandbagging" their sales at the end of the month. You see, we had a bonus program, as most companies do, for our salespeople based not only on their overall annual sales, but we had "kicker" bonuses based on large sales in any given month. Thus, if we were unable to bill a client because of the issue with the single bill date, some salespeople would "hold" the sale until the turn of the month in hopes of goosing next month's numbers.

Sounds simple, right? Turns out the salesperson "sandbagging" issue is quite prevalent, in fact, it makes sense in any company where you would offer monthly bonuses or quotas. During our acquisition diligence period, someone was auditing our financials and asked us whey all our billing was on the 8th and 23rd, and I explained the rationale behind the billing to our acquirer. Within eight months, they implemented it into their entire company, and their VP of Operations told me that simple change earned them over a million dollars annually in "non-sandbagged" sales.