Management software plays an important role in the effective growth of your business. A major component of your software is the billing process, and many fitness facility owners are confused about this component. A commonly asked question is, "Should I manage my own billing or should I let someone else handle it for me?" If you align yourself with the correct software system and billing process and if you ask the right questions, you will be able to retain members and minimize your processing costs.
Nine important elements are part of an effective and successful billing process for your fitness facility. Understanding each one will empower you to operate a more successful business.
1. Processing your billing. You can run your billing once a month, multiple days or every day. Companies will charge from 2 percent to 7 percent of the monthly draft to provide this service. They also will handle the time-consuming task of contacting members to get updated billing information, which involves phone calls, emails and letters for up to 90 days. Please note that some billing companies will include the merchant fee in this charge. Most will not.
Best option: Have your billing run every day and look for rates under 3 percent. This will provide your business with better cash flow since money will be deposited in your account every day.
2. Settling money in your bank. Credit cards can have money settled by the next day, in two days or can be held for up to 15 days. ACH (Automated Clearing House, or bank debit) can settle in two to five days or up to 15 days. Knowing how quickly your money is settled is important and sometimes overlooked. Any money that you process that is held for more than four days should be questioned.
Best option: Have your money settled as quickly as possible. The reasonable settlement time period is two days for credit cards and two to four days for ACH.
3. Merchant account (credit cards). This can become your biggest expense. Fees can range from 1.65 percent to 3.25 percent, depending on the type of cards that are used. Some companies force you to use their merchant processor. Other fees range from 10 cents to 20 cents per transaction. Don't worry about all of these little fees. Just find out what the collective cost to you will be based on your monthly draft. Some companies can provide a cost-analysis.
Best option: Have the option to use another merchant account to ensure that you can always get the best rates possible. Look for rates around 2.5 percent.
4. e-Check processing (bank account). Rates can range from 10 cents to 35 cents per transaction. Additional charges can include a percentage of the dollar amount of transaction.
Best option: Look for a fixed transaction charge and settlement in four days or less.
5. POS (point of sale) processing. Rates can range from 1.65 percent to 4.5 percent. Obviously, some software companies are charging extremely high rates.
Best option: Look for rates averaging about 2.5 percent for all POS transactions.
6. Late fees. When trying to get members to pay their monthly dues, late fees are a way to make sure they pay you in a timely manner. A typical late fee would be $15 to the member. If you do not charge late fees, then members will not worry about missing a payment. Some billing companies will waive the first late fee. If a gym has 1,000 members paying monthly, and 10 percent paid late fees, that would total about $2,000 in revenue from the late fees. Most billing companies keep 100 percent of these fees.
Best option: Look for a software company that allows you to control the late fee amount. Also, look for companies that would be willing to share some of this late fee revenue with you.
7. 90-day collections. After a billing company exhausts all efforts in trying to get a member to pay his or her dues, that individual will no longer remain a member of the gym. Now it will become a clear collection effort. These members will be sent to a more aggressive collection process where the gym will keep about 60 percent of any money that is collected. Most gyms do not have a good plan in place for this.
Best option: Look for a billing company to handle this process for you. Also, make sure that these members are clearly marked "collections" in your management software.
8. Handle membership cancellations and freezes. Not all billing companies offer this, but some will. Whenever a member wants to cancel or freeze his or her membership, that member will handle the process through the billing company. The benefit of this arrangement is that the gym can focus on selling memberships and providing better customer service to existing members.
Best option: Look for companies that will handle the cancellation or freeze process the exact way that you want it handled.
9. Customizing the process to reflect your values. Most billing companies will handle the billing process exactly the same way for every client. They have their rates and their ways and will rarely deviate. They will tell you this is the way it has to be.
Best option: Look for companies that will have a core framework of a working process. Then, they can work with you to adjust the process so that it reflects your company values.
These nine elements of the billing process comprise a good list to follow. Some gyms manage their own billing and do a pretty good job. But that is the exception to the rule. The average decline rate for a well-run club is about 10 percent. If you are near that number and are not spending much time on a monthly basis updating payment information for failed members, you can keep on handling the billing on your own. If not, find someone who has experience handling this and can provide you with many best options.
Content Sponsored by ShapeNet Software.
Larry King is the founder and CEO of ShapeNet Management Software and Billing Services. ShapeNet was established in 2002 and was the first company to provide a cloud management system for the fitness industry. Prior to ShapeNet, King worked on Wall Street designing software systems for brokerage firms and businesses that needed stock lending solutions. Married with two children, he not only works in the fitness industry, he lives it. He has completed 12 marathons and two triathlons and enjoys being around fitness-minded people.