A question about business practices

Balrog

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Last year, we had a bunch of people default on contracts. They quit coming to class and quit making their monthly payments. We wrote off way too much bad debt in 2015.

I want to get more aggressive about collections, so I'm asking what you guys do? If you use a collection agency that gives you good results, would you mind sharing their website with me so I can check them out? Do you charge a penalty for early contract termination, and if so, what? Etc.,etc;

Thanks in advance!
 

hoshin1600

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I would think twice about this course of action. My first question is how or why are you writing off debt? How is a broken contract debt? While I understand it is lost revenue I am having trouble seeing it as debt.
Strong collection practices while on the ledger books might work it will kill your reputation. That to me is worth the "good will". Consumers absolutely hate contracts as it is and will despise you and your dojo if collections are put in place.
The only way around this that many dojos used was a third party billing company. But I am not even sure if these are still allowed. lots of gyms took advantage of the concept.
We used to use Educational Funding Company
 

Dirty Dog

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Ditch the contracts. Let people pay month to month, in advance.
If you need contracts to keep them coming, you've got other issues to worry about.
 

Ironbear24

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I don't understand how this created debt. Or even a loss of revenue, they paid for the services in advance, and simply did not continue to show up for what they paid for.
 
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Balrog

Balrog

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Ditch the contracts. Let people pay month to month, in advance.
If you need contracts to keep them coming, you've got other issues to worry about.
Ditching contracts is not an option. We bill monthly dues automatically through the bank. If the credit card doesn't clear, then we are left with an open invoice in the accounting system that has to be handled through write-off. I'd rather collect the funds that are due to us.

Yes, I agree that if people just stop coming, that is a separate issue with classes and curriculum and we are addressing that. However, we still need to address the accounting issue.
 

Buka

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I've taught Martial Arts for a long time, never had contracts in my dojos. Wouldn't even have considered it.

But if I were to open a full time dojo today, I'd have contracts. You betcha'.
 

Flying Crane

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When you enroll for a course of study in a college or university, you pay for one semester at a time. Within that, there is a period of time in which you can drop the class and get a full refund, and an additional period in which you can drop the class and get a partial refund.

If a contract was structured around this model, I could see that as reasonable. Say, a contract for three, maybe four months of training, full refund if you drop within three weeks, partial refund if you drop after three weeks but within six weeks. Something like that, with those date clearly identified for the student so there is no wishy-washy ambiguity.

But a full year contract, or a six month contract, with full obligation to pay even if you stop coming no matter when, that is a business practice that I find very objectionable.
 

Buka

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My buddy runs a Kenpo dojo/fitness center in Newton MA. He's got a ton of folks going there (over 35 years now). He does the contract thing. He has hundreds of students and a bootload of clients (for the fitness facilities). He couldn't possibly keep track of who's paying and on what dates.

To stop paying, all you have to do is call him or the billing company and it stops right away, no questions, no pressure. He showed me something in his books last year. There were seven people who were still paying even though they hadn't been there in over six months, one of them for two years. (It's an affluent city and the people I'm talking about are well off) I asked him if he ever runs into those people around town. He said, "All the time, but they try to duck me if they see me first."
I asked why.
He said, "Sometimes I sneak up on them and say Hi!. The very first thing out of their mouths, every single time is, "I'm coming back, I've just been so busy, but I'll probably be in class in a couple weeks, honest"
And then, of course, they never come.
He went on to say, "They do not want to admit to themselves that they aren't training anymore. If they called up and cancelled it would be an admission of quitting."

I know that sounds nuts, but as I said, it's an affluent town.

If I were to open a dojo again, it would be with that kind of contract where they could stop anytime with no hassle and shady business. I do not do shady business and never would. And with contracts you wouldn't have to keep track of who's paying and on what dates. Running a dojo is enough work as it is without all the associated business hassles.

if it was a small club I wouldn't use contracts, no need, but if it was a busy place, I most definitely would.
 

Dirty Dog

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My buddy runs a Kenpo dojo/fitness center in Newton MA. He's got a ton of folks going there (over 35 years now). He does the contract thing. He has hundreds of students and a bootload of clients (for the fitness facilities). He couldn't possibly keep track of who's paying and on what dates.

To stop paying, all you have to do is call him or the billing company and it stops right away, no questions, no pressure. He showed me something in his books last year. There were seven people who were still paying even though they hadn't been there in over six months, one of them for two years. (It's an affluent city and the people I'm talking about are well off) I asked him if he ever runs into those people around town. He said, "All the time, but they try to duck me if they see me first."
I asked why.
He said, "Sometimes I sneak up on them and say Hi!. The very first thing out of their mouths, every single time is, "I'm coming back, I've just been so busy, but I'll probably be in class in a couple weeks, honest"
And then, of course, they never come.
He went on to say, "They do not want to admit to themselves that they aren't training anymore. If they called up and cancelled it would be an admission of quitting."

I know that sounds nuts, but as I said, it's an affluent town.

If I were to open a dojo again, it would be with that kind of contract where they could stop anytime with no hassle and shady business. I do not do shady business and never would. And with contracts you wouldn't have to keep track of who's paying and on what dates. Running a dojo is enough work as it is without all the associated business hassles.

if it was a small club I wouldn't use contracts, no need, but if it was a busy place, I most definitely would.

That's automatic billing, which I think is a great idea. The contracts under discussion are "you pay for a year. If you stop coming, tough. You still pay for a year."
Which is a load of horse crap, to my way of thinking.
 

Buka

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That's automatic billing, which I think is a great idea. The contracts under discussion are "you pay for a year. If you stop coming, tough. You still pay for a year."
Which is a load of horse crap, to my way of thinking.

Oh. I didn't know that kind of things exists. Ah, lesson learned, thanks.
Yes, I think it's a load of horse crap, too. I would think that kind of thing would scare away more people than it might get to bite.

Besides, I don't want folks dumb enough to sign up for that as my students. :)
 

Touch Of Death

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Look up Master Silva (Frank I think) in the Black belt association of America. You don't have to use all his tactics, but you will find they get results.
 

Bill Mattocks

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First of all, let's get past the idea that contracts are a bad thing. They're a thing. They have positive and negative aspects.

Many businesses which deal with recurring fees use a contract model. It serves a variety of purposes. As mentioned, it can keep people coming, although as also noted, if that's how a business has to keep the customers coming back, it may not be an ideal model.

However, from a purely business standpoint (forget the martial arts part, just say 'business'), they can be quite good. When a business needs to expand, or to get a line of credit, or to prove that they are a going concern for a variety of other reasons, contracts are 'Accounts Payable'. They are assets. Banks like to see assets.

Imagine going to your bank because you want to expand or buy your own building, etc. You ask for a mortgage loan, and the bank says "Great! What is your income?" You produce your income statements and they say "Oh, wait. You mean any or all of your students could quit tomorrow and your income would be zero?" And you say "Yes, because I do not believe in contracts." So the bank says too bad, so sad, come back when you can offer them some reassurance that the money will keep rolling in so you can repay your loan.

Contracts are contracts. It doesn't matter if you're buying a refrigerator on buy-here, pay-here credit or signing up for Kung Fu lessons. If people sign up for martial arts lessons and agree to pay X amount per month for Y months, then that is what they should do. Most contracts offer some way of negating the contract, but that is up to the business to offer and the buyer to read and understand. Typical exemptions include relocation more than X miles away, or if the business itself closes and does not offer an alternative, long-term disability, loss of employment, etc. They might or might not be in the contract. People should READ THE CONTRACT. If they fail to do so and fail to pay, they get turned over to a collection agency. That's how it works. It's not evil and it's not wrong.

Collection agencies typically buy 'bad paper' for pennies on the dollar. Unfortunately, it's difficult to recoup full value from defaulted contracts which are not secured by real property.

Another way of securing recurring income without a contract is the model being currently employed by some low-cost fitness centers in the USA. That is, month-to-month with no contract, but requiring automatic withdrawal from a checking account, and making 'quitting' require an affirmative action on the part of the quitter. That is, instead of just not showing up and therefore not paying every month, the money keeps coming out of the student's checking account until the account is closed or the student sends an actual letter to the company (fitness center, dojo, etc) requesting to end the membership. Some may not like this, but no one gets turned over to a collection agency, there is some predictability for the business, and there is encouragement to attend (even if it isn't the best way to encourage attendance). Trust me, most fitness centers that bill this way would go out of business if everyone who paid actually went. They would not have even close to enough room to handle them all. They COUNT on most people paying but not going. Human nature pays the bills.

Having said all that, our dojo is month-to-month. I like it, it works for me. I would attend no matter what was required by my dojo. But that's just me.

If I were trying to run a dojo as a business, I would absolutely require either a contract or go month-to-month with automatic withdrawal. If I were only running it as a hobby (not a strong enough word, but it will have to do), then month-to-month would be fine.

Businesses are BUSINESSES. They are most successful when they are run as one, if financial success is what is desired.

Think about it this way. I'm sure there are some grocery store owners who don't care about profits and only want everyone to have the best possible food for the lowest possible cost. Most of them, however, are in business to make money. Sorry, sad fact of life. Martial arts training really isn't any different. Probably a lot more are in it because they love it and just want to pass along their knowledge, but MOST of them are businesses, trying to earn a living and make a profit. That's how it is.
 

WaterGal

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We used to use a third-party billing company that - allegedly - handled collections. We only had a couple times when someone wanted to quit and stop paying for no good reason other than "I'm too lazy to drive my kids to class", and the company did call and hassle those people and negotiated a deal where they'd send us a check for half of their remaining dues. But it always ended up being stressful and half the time they hassled people who just forgot that their credit card expired or didn't call people who actually stopped paying until we asked them to. And we were paying them about 7% of our monthly tuition for this "service".

Long story short, we stopped using that company and switched to in-house billing, and started offering a month-to-month option as well as a yearly contract. We've had a couple people since since then who signed up for year and then after a few weeks just stopped showing up and I guess cancelled their credit card so the payments bounced, and so far we've dealt with it by calling them a couple times to check on them and then dropping their memberships and moving on. Hopefully that doesn't become a big problem, though.
 

Monkey Turned Wolf

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Last year, we had a bunch of people default on contracts. They quit coming to class and quit making their monthly payments. We wrote off way too much bad debt in 2015.

I want to get more aggressive about collections, so I'm asking what you guys do? If you use a collection agency that gives you good results, would you mind sharing their website with me so I can check them out? Do you charge a penalty for early contract termination, and if so, what? Etc.,etc;

Thanks in advance!
To get back on topic, Balrog- Do they quit coming to class and therefore stop the payments, or do they continue coming, but stop paying? These are two entirely different issues: If it's the first, the concern should be more with why they are quitting and whether or not you have a fair opt-out clause (I'm not stating you have to let them go free like others are saying, if for some reason there's an issue with that, but maybe have a very minimal fee for it, or something similar). Try to get people to continue attending as best as you can, and make it reasonable if they no longer want to. Since you mentioned the accounting issue, my assumption is that you don't have a fair opt-out clause which is why people are defaulting.
If they continue coming but stop paying, you need to become more aggressive with collections. If you let people continue coming to class for free and cause issues with your own accounting/taxes/etc., that's horrible for the business and you need to talk directly with the people who are not paying before/after class and deal with it directly.

Disclaimer: I have been told that my advice through messages often comes off as commands or statements of fact, but I do not mean them that way, they are only meant as my take on the matter/how I would handle it.
 

hoshin1600

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First of all, let's get past the idea that contracts are a bad thing. They're a thing. They have positive and negative aspects.

Many businesses which deal with recurring fees use a contract model. It serves a variety of purposes. As mentioned, it can keep people coming, although as also noted, if that's how a business has to keep the customers coming back, it may not be an ideal model.

However, from a purely business standpoint (forget the martial arts part, just say 'business'), they can be quite good. When a business needs to expand, or to get a line of credit, or to prove that they are a going concern for a variety of other reasons, contracts are 'Accounts Payable'. They are assets. Banks like to see assets.

Imagine going to your bank because you want to expand or buy your own building, etc. You ask for a mortgage loan, and the bank says "Great! What is your income?" You produce your income statements and they say "Oh, wait. You mean any or all of your students could quit tomorrow and your income would be zero?" And you say "Yes, because I do not believe in contracts." So the bank says too bad, so sad, come back when you can offer them some reassurance that the money will keep rolling in so you can repay your loan.

Contracts are contracts. It doesn't matter if you're buying a refrigerator on buy-here, pay-here credit or signing up for Kung Fu lessons. If people sign up for martial arts lessons and agree to pay X amount per month for Y months, then that is what they should do. Most contracts offer some way of negating the contract, but that is up to the business to offer and the buyer to read and understand. Typical exemptions include relocation more than X miles away, or if the business itself closes and does not offer an alternative, long-term disability, loss of employment, etc. They might or might not be in the contract. People should READ THE CONTRACT. If they fail to do so and fail to pay, they get turned over to a collection agency. That's how it works. It's not evil and it's not wrong.

Collection agencies typically buy 'bad paper' for pennies on the dollar. Unfortunately, it's difficult to recoup full value from defaulted contracts which are not secured by real property.

Another way of securing recurring income without a contract is the model being currently employed by some low-cost fitness centers in the USA. That is, month-to-month with no contract, but requiring automatic withdrawal from a checking account, and making 'quitting' require an affirmative action on the part of the quitter. That is, instead of just not showing up and therefore not paying every month, the money keeps coming out of the student's checking account until the account is closed or the student sends an actual letter to the company (fitness center, dojo, etc) requesting to end the membership. Some may not like this, but no one gets turned over to a collection agency, there is some predictability for the business, and there is encouragement to attend (even if it isn't the best way to encourage attendance). Trust me, most fitness centers that bill this way would go out of business if everyone who paid actually went. They would not have even close to enough room to handle them all. They COUNT on most people paying but not going. Human nature pays the bills.

Having said all that, our dojo is month-to-month. I like it, it works for me. I would attend no matter what was required by my dojo. But that's just me.

If I were trying to run a dojo as a business, I would absolutely require either a contract or go month-to-month with automatic withdrawal. If I were only running it as a hobby (not a strong enough word, but it will have to do), then month-to-month would be fine.

Businesses are BUSINESSES. They are most successful when they are run as one, if financial success is what is desired.

Think about it this way. I'm sure there are some grocery store owners who don't care about profits and only want everyone to have the best possible food for the lowest possible cost. Most of them, however, are in business to make money. Sorry, sad fact of life. Martial arts training really isn't any different. Probably a lot more are in it because they love it and just want to pass along their knowledge, but MOST of them are businesses, trying to earn a living and make a profit. That's how it is.
I'm sorry but I don't agree fully with your premise. The fact that 80 percent of enrollment for martial arts is children. Contracts for them can be unscrupulous business. I am not going to sign a one year contract for my 5 year old. Who will no longer be interested in a few weeks or months. Truth is many students start and find out shortly after they don't want to continue for some reason. To Only do contracts knowing most will quit before a year is not right. To have contracts for a discounted monthly fee is different if you also offer month to month.
 

WaterGal

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Keep in mind that (at least where I live) a lot of kids' activities like dance lessons and team sports require you to pay in full up-front for a full season or year, no refunds. Many of the ones that don't still require you to sign up for a contract. If your kid gets tired of dance or hockey or piano lessons or that enrichment robotics class you signed them up for and you can't motivate them to keep going, well, tough.

Regardless of how people feel about it, contracts are extremely common both for kids and adults activities.
 

Andrew Green

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I'm sorry but I don't agree fully with your premise. The fact that 80 percent of enrollment for martial arts is children. Contracts for them can be unscrupulous business. I am not going to sign a one year contract for my 5 year old. Who will no longer be interested in a few weeks or months. Truth is many students start and find out shortly after they don't want to continue for some reason. To Only do contracts knowing most will quit before a year is not right. To have contracts for a discounted monthly fee is different if you also offer month to month.


If your kid is losing interest and changing activities every few weeks I think there is a different issue at hand as well. Young kids sometimes need a push to keep at things, not just martial arts. Mid-hockey season they decide they don't want to continue? Most parents are going to keep them going to the end of the season, doing otherwise is not only unfair to the rest of the team but really missing the boat on teaching them about commitment and finishing what you start.

Maybe a year is too much for a lot of families, but almost all activities will have some sort of term attached to them and the expectation that the child will complete it.
 
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