Complete Guide To Charge/House Accounts For Florists (Updated)
Offering credit in the form of charge accounts (also known as house accounts) has always been a topic of debate among florists. The basic idea is that the flower shop allows the customer to place orders without collecting payment at the time of purchase. Instead the florist invoices the customer, who then pays at a later date.
Florists are somewhat unique among retailers in that a lot of them still offer this kind of credit. It's almost impossible to imagine going into a restaurant or clothes store and asking if you could take something now and be invoiced for it later – this is what credit cards are for. But a lot of florists continue to offer credit priviliges to customers that ask. Does it make sense for your shop?
Why Do So Many Florists Still Offer House Accounts?
It's largely tradition. Credit cards really only gained widespread acceptance in the 60s and 70s (a long time ago in some ways, but not for the many 3rd and 4th generation flower shops out there) and, before that, sending the flowers on credit and invoicing later was really the only way to deal with phone orders. The practice just kind of stuck.
Another reason is that a charge account is the only payment method some commercial customers will accept. For example a funeral home or corporate HR department that is ordering on a regular basis will often insist on credit and only pay on invoice or, in some cases, a monthly statement. Florists value this kind of client and – with good reason – want to accommodate them.
Should You Offer Charge Accounts?
Let's take a look a the pros and cons of letting your customers order flowers from you on credit.
Drawbacks To Offering Credit In A Flower Shop
The problems with offering credit to your customers in the form of a charge or "house" account include:
Extra Work
Instead of just taking a credit card the florist has to send an invoice and/or statement and then process and record that payment at a later date. Even worse they may have to make repeated attempts to collect on the invoice.
Delayed Cash Flow
Credit card sales are almost always deposited to the merchants bank account the next day. If a florist offers credit instead they have no chance of getting paid before they send the invoice and, once they do, it's up to the customer as to when they actually get around to paying it.
Risk
There is always the chance that the customer is not going to pay for the flowers.
Benefits To Offering Credit In A Flower Shop
The advantages to offering house/charge accounts in the flower business include:
It Can Reduce Credit Card Fees
Florists typically pay at least 2% (and often much more) to process credit cards. On a typical sale that probably feels like a fair trade for having the money deposited in their account within 24 hours.
But on a larger sale, like a $2,500 event or monthly total for an HR department, that means giving away well over $50 in processing fees!
Some florists address this by surcharging their credt card sales (FloristWare includes a surcharging feature) but others, if they...
- trust the customer
- can afford the cash flow implications
- don't mind waiting for a check
...are happy to offer credit in some cases.
Competitive Advantage
Like we mentioned earlier this is the only payment option some high-value customers will accept, or at least strongly prefer. If offering house accounts means getting that business a lot of florists are ok with waiting for the money.
There is no simple yes or no answer to the question of whether florists should offer house accounts. Instead it's a case by case decision that will depend on the situation.
When Should A Florist Offer Charge/House Accounts?
Although the general trend in the floral industry has been to reduce if not eliminate offering credit there are situations when it makes sense:
It Helps You Get/Maintain Business You Could not Otherwise
If a large, high value customer is pushing hard for charge priviliges and you believe they will pay in a timely manner offering credit in the form of a charge account makes sense.
To Save Money
If a customer is going to be spending a lot of money, and you trust that they will pay according to the terms you set out, getting paid by check can offer real savings (at least 2% of the after-tax total) over taking a credit card.
Community Expectations
It's increasingly rare but there are still some small, close knit communities where it's common for small businesses to offer credit. In places like that it may still be something that florists have to offer.
When Should A Flower Shop Not Offer Charge/House Accounts?
Situations where it makes sense to offer credit, in the form of a charge or "house" account include:
Because They've Always Done It
There are still stores out there that will offer credit to anyone that asks (some will even offer it) because that is the way it's always been done. That alone is not enough reason... even if habit tells you to offer a charge account try asking for a credit card first.
Smaller/Less Frequent Customers
If a large customer – like a funeral home, car dealership, realtor, hotel, restaurant, etc. is ordering flowers several times a month it makes sense that they would want to pay on invoice/statement, and there are likely significant savings for you as well. But with smaller customers that spend less and/or order less often it just doesn't make sense.
Customers That Want To Pay Their Statement/Invoice By Credit Card
Don't continue giving credit to a customer that wants to pay their invoice/statement by credit card. The basic tradeoff is that by offering credit you get paid later (bad!) but you get paid more because you aren't giving a percentage to the credit card company (good!).
If a customer is going to wait and then try and pay their account with a credit card it's all of the bad and none of the good – you are waiting for payment AND still giving away a percentage to the credit card company.
If the customer has a credit card they can use to pay for floral purchases once they get a statment why not just give it to you when placing the order?
Doing House Accounts The Right Way In The Flower Business
If you are going to offer charge accounts in your flower shop please keep the following in mind – and remember that FloristWare offers a powerful suite of AR features, built specifically for retail florists, that make this easy.
Be Selective
Only offer credit to customers you believe will purchase in significant volume and pay on time. FloristWare lets you decide which if any (we take security and access control seriously too!) employees can decide what customers get charge priviliges.
Get A Back-Up Credit Card
Make sure to get and keep a backup credit card on file with the understanding that if payment is not received in X days you will charge the card, along with a penalty.
Specify Terms
Make sure that you clearly state your expectations about when (on invoice or on statement, typically expressed as a number of days) and how you will get paid (again, specify no credit cards if at all possible). FloristWare lets you specify default terms for your flower shop that will automatically be applied to all new charge accounts, but also lets you specify custom terms for each indicidual account.
Set/Monitor Credit Limits
Make sure every account has a credit limit, and make sure you check it every time the customer tries to charge to it. FloristWare automates this – every account starts with whatever you set as your default store credit limit but allows the employees you select to override this and give specific credit limits for each account. It then checks every time an employee tries to charge to an account to make sure they are not going over.
Invoice And Issue Statements Quickly
Charge accounts can't get paid until the customer gets their invoice or statement. And there is ample reasearch that shows that the longer it takes to send an invoice the longer it will take the customer to pay it. This makes sense... if the customer gets an invoice for flowers that went in the garbage two weeks earlier and are already a fading memory they are more likely to put the invoice to the side. FloristWare makes it easy – sending invoices at the time of sale (or statements at the end of the month) can be automated.
Make Invoices Detailed
Research also shows that vague invoices take longer to get paid. Again this makes sense... if the customer gets an invoice that doesn't immediately identify what the flowers were for they are more likely to put it to the side to be dealt with later. FloristWare produces detailed invoices that result in faster payment.
Bill The Way The Customer Wants
Some customers will want invoices, some will want statements, some will want both. Some will want hard copies mailed, others will want them send by email. You will get paid faster if you use the method the customer prefers, so FloristWare lets you specify preferences for each account.
Be Clear About Penalties (Fees and Interest Charges)
If you want to collect penalties make sure that you are clear about how they will be applied on your invoices and statements. FloristWare allows for a number of options including late payment fees and interest charges, and again these can be customized for each individual account.
Don't Expect Penalties To Do All The Work
Almost nobody likes making collection calls, and florists often think that just sending addiitonal statements with more penalties will result in getting paid. Sadly it's not that simple – you will need to chase down delinquent accounts the old-fashioned way – but FloristWare has reports and tools that help when it's time to chase down payments.
Account For Penalties Correctly
If you are going to charge penalties you need to account for them correctly. Most POS systems get this wrong but we take accounting seriously and make sure it's done right.
Keep An Eye On Things
Shops tend to keep an eye on balances that are getting big and old because they are worried about not getting paid, but charge account activity shows a lot more than that. For example if you had a good corporate client that was ordering several times each month and they stop it's a good idea to reach out. Maybe they switched vendors and you need to try and win them back. Or maybe a new employee doesn't know that you are the preferred florist. Whatever the case you need to get on it, and the powerful florist-specific reports in FloristWare will help.
The debate about charge accounts in the flower business has been going on for a long time. Almost twenty years ago the following post appeared on the gone (but not forgotten) FlowerChat bulletin board, one of the best online resources the floral industry ever had.
Folks, get rid of your house accounts....all of them!
I know, you are in a small town, they are old faithful customers, etc, etc. In today's world, everyone has a credit card or a debit card. They use 'em everywhere else...why not with you??
We have had a policy in my store for almost 20 years that the product does not go out the door if the order is not paid for first!! We have very, very few house accounts....Our billing each month is very minimal (a few major corporations, a few churches and the like). We also bill those people weekly......Payment is due withing 15 days....not 30! (have you checked what your cc company, etc allows you in days to pay your bill lately? It's not 30 days any more!!)
If you are not processing the credit card before delivery, you need to to start immediately. If you bill and currently bill net 30 days, it need to move first to net 25,...then net 20...then net 15 or 10.
Also, my sales staff is trained, as they are taking an order, and about to request payment, to say the following: "Would you like to place today's order on your mastercard, visa, discover or american express? ". If asked if we will bill them, the answer is: No sir/mam, I'm sorry. We eliminated our in-store billing programs a number of years ago." If asked if the order can be paid for COD? "no sir/mam, our drivers do not carry change, and are not bonded to carry & accept cash payments from you."
This was hard for our shop to do at first.....over a short period of time, however, it grew much easier to ask for payment, and respond to the customer inquiries. We also mail out a receipt on each & every purchase that is made by phone by our customers, so that they have a record of what has been charged on their credit card. (It goes out with a "thank you for your order" letter.). Big PR hit, and enforces our honesty and trustworthiness, expecially with our elderly customers..
Hope the above information helps....be brave...you can also venture into the relm of "almost no house charges" !!
Happy holidays to everyone!