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Problem Customers paying bills late

By Julia Woods,2014-04-08 21:11
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Problem Customers paying bills late

    Billing Problem

    Brian Linde, Evan Lohbeck, Jackie Miefert,

    and Kristin Wuest

    April 30, 2003

    - 1 -

    Problem: Customers paying bills late.

Step One

    The mission statement for our problem is derived from Brian’s lawn care service. The

    following objective is a concern that Brian has decided to address.

    Objective (goal): Reduce past due bills of greater than 15 days by 70%.

Step Two

    Brian keeps all of his previous billing records on file. We used this information to find

    out how many bills for last seasons work were paid after 15 days of due date and the

    reasons for bills being paid late.

    Bills Outstanding for each month of the business season:

April: 12 bills

    May: 9 bills

    June: 14 bills

    July: 13 bills

    August: 10 bills

    September: 11 bills

    October: 7 bills

Average Number of Late Bills: 10.857

    Bills Over 15 Days Past Due

    15

    10

    5

    0Number of Bills

    April

    May

    Months

     June

    July

    August

    September

    - 2 - October

    Reasons for Late Payments

    50

    40

    30

    20

    Number10

    0

    Category of Reason for Late Payment

Step Three

    We all sat down and first tried to decide what categories to use with the title for the head

    of the fish. Kristin suggested that we use the categories used in the notes. After more

    consideration and discussion we decided to use a combination of the notes and our own

    categories, which seemed to be more applicable. Brian gave most of the causes because

    of his first hand knowledge.

    Environment Clients

    Waiting for payday Did not see the bill Lost bill as important Vacation

    Forgot

    Causes of

    Late Bills

    No system for

    No penalty for late payments notifying

    customers No reward for early payments

    Inputs Personnel

    - 3 -

Step Four

    Brian discussed what each cause meant in relation to the customers. After we listened and asked questions about the causes, we all placed a numerical value on the strength of the causes.

Informal Causes:

1. No penalties for late payments.

    2. Customer does not view bill as a priority.

    3. No discounts for early payment.

    4. Waiting for payday.

Criteria for Voting on Solutions:

1-low strength; 5-high strength

Causes Average Score

    No penalties for late payments. 4.5

    Customer does not view bill as a 3.5

    priority.

    No discounts for early payment. 2

    Waiting for payday. 1

Step Five

    Evan led the discussion on this topic because of his discussion with Matt Ford. We all agreed that the last step should probably resemble some type of belief for the customer or Brian.

*Cause One: No penalties for late payments

     -Why? To retain customers through keeping them happy.

     -Why? Because satisfied customers are what keep the business operating.

     -Why? Dissatisfied customers go elsewhere.

     Because a more desirable service is what the customer want. -Why?

    -Why? Because Brian believes that if he tries to enforce a late fee then

    customers will become dissatisfied with his service.

*Cause Two: Clients do not view the bill as a priority.

    -Why? Because the cost is not associated with the operations of the customer.

    -Why? The customer thinks that the lawn service is one of the minor expenses.

    -Why? Because it is a small cost and it will not disrupt operations if not paid.

    -Why? Other bills with a higher priority will disrupt operations.

    -Why? Because other bills like gas and electric can disrupt operations and the

    customer believes that the manicuring of their lawn is not as important.

    - 4 -

Step Six

    Our main focus was to keep customers satisfied and recover payment sooner. We agreed with Jackie’s suggestion of giving the customer slack with the late fees and discounts to counteract them. After we put the idea on paper, we all agreed it was the best method.

Root Causes Solutions

    Belief that late fees will deter business. Implement penalties on a trial basis with

    generous boundaries; simply ask customers

    to pay bills sooner.

    Belief that lawn service bill is not Offer discounts for early payments;

    important. articulate how important the image of a

    professional looking lawn is to reputation

    and therefore business.

Step Seven

    Brian’s lawn care service is a one-man business. He does not have any issues with

    implementations except for those with the customer. We observed no resistance from the customers because of the generous boundaries set forth and the repor that has been built up.

Implement Remedies:

    1. Send letters to current customers about the new policy.

    2. For the month of implementation, put an additional letter with the bill describing the changes.

    3. From the month of implementation, on out, print notice of a late fee and discount on actual bill.

Step Eight

    Our previous average for bills greater than 15 days past due for the season was 10.857, with a goal of a 70% reduction. That reduction would result in a new average of only 3.257 bills over 15 days past due. The line graph below illustrates April’s invoices and the number of days late for each. The average days past due for April’s invoices was 4.9. This means we over shot our goal and reached a 100% reduction for the month of April as depicted in the line graphs

    April Invoices8

    6

    4

    2

    0Days Past Due

    12345678910

    Customer bills

    below.

    - 5 -

    April Invoices8

    6

    4

    2

    0Days Past Due

    12345678910

    Customer bills

    Bills Over 15 Days Past Due

    16

    14

    12

    10

    8

    6

    4

    Number of Bills2

    0

    April

    May

    Months

    June

     JulyStep Nine

     AugustUsing the c-chart formula, we calculated the upper and lower control limits for the mean.

    We did not plot the data because we have only one month’s worth and need a few to Septembermonths to interpret the data in relation to the UPC and LPC. Using the Formula we

    calculated an UPC of 11.54 and a LPC of 0. We think that a control chart should be Octobercreated quarterly to check if the process is holding the changes. If not, then Brian should

    start calling customers to find out why bills have not kept around the same days late. April 03

    - 6 -

    Control Chart for Invoices

    14

    12

    10

    8

    6

    4

    Days Past Due2

    0

    4.9 average

    Customer Bills

    - 7 -

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