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Is Toner Your Weakest Link to Profitability?

9 Oct, 2001 By: Ronelle Ingram imageSource

Is Toner Your Weakest Link to Profitability?


received a very insightful voice mail recently. Before I could respond with a
return telephone call, I mistakenly erased the voice mail before recording the
name and number of the caller. For purposes of this discussion, I will name my
mystery caller Todd. Had I not accidentally deleted Todd’s return number,
these are the thoughts we would have shared:


voice mail went into detail of many of the problems resulting from all inclusive
service agreements. Todd expressed his concern on how to deal with providing
toner to the CPC customer. He felt the escalating costs and diminishing returns
of selling all inclusive service agreements should be addressed. The toner usage
issue is a frequent point of discussion during seminars I teach or attend. The
tracking of toner usage and acquiring accurate meter readings continues to be a
concern. Todd commented on the general belief:


connected equipment tends to print a larger percentage of fill. Customers lose
the toner we send or seem to be selling it on eBay. Shipping costs continue to
escalate. It is time consuming to track the payment we receive from the lease
companies that reimburse us for the service and supply portion of the CPC.
Customers that are billed monthly are always a few months behind in sending
their payment.”


are some idea’s that dealers throughout the United States, Canada, Australia,
and Europe have shared with me. Select the ones that are most appropriate for
your local customer base.

  • Bill
    monthly MA service agreement to customers promptly, with base up front,
    overages in arrears.
    Encourage quarterly billing up front. When a
    customer’s account researches 31 days past due, immediately stop providing
    service and supplies. Never ship toner to a customer with a past due
    account. Be polite, but be firm. Dealers cause their own problems. We set
    ourselves up to be put in an adversarial position. The more lenient you are,
    the more animosity is created when you put a customer on credit hold.

  • Make
    sure your company is set up as a credit card vendor.
    You will be amazed
    at how many of your customers will be willing to pay their (past due) bills
    with plastic. Make it a company policy to always offer credit card billing.
    You can even set up for periodic (monthly or quarterly) automatic billing,
    to a credit card account to pay the periodic service agreement charges. Some
    of you may be shaking your head in disdain asking, “What about that 1% to
    4% vendor fee that is charged?” Your ability to increase cash flow and
    shorten your receivables will more than make up for the few percentage
    points that are lost in credit card transactions. Think how much is written
    off on a regular basis on customers who always seem to short pay an invoice
    or refuse to pay shipping.

  • Whenever
    possible, encourage quarterly, semi-annual or yearly billing.

    Change your terms to due upon receipt or due 10 or 15 net days when you are
    billing the customer directly. The cost of carrying a delinquent customer is
    often greater than the actual cost of the toner you are providing.

dealers have chosen to limit the amount of toner provided under CPC’s. If your
market place allows you this limitation, you may find the cost of actually
tracking the amount of toner provided to a CPC customer is greater than the cost
of the product that may be lost, misused, or fraudulently obtained. There is a
substantial cost to tracking each customers supply usage. The time and money
spent, energy depleted and negative feelings created when a customer is told
they must pay for additional supplies is often self-defeating. Customers feel
they are being double billed, or unrealistic usage was allotted.


Control Issue

dealers provide all allotted products at the beginning of the contract. This
controls the amount of product and eliminates several freight bills. However,
the instant cost to the dealership of a years worth of product is substantial.
This method should only be considered for very low volume agreements that are
paid up front in a single payment.


and real estate offices seem to use more toner than lawyers and CPA’s. You can
have different rules for different classifications of customers. Some dealers
merely add a clause to their service agreement that states supplies will be
provided based on the manufacture’s listed usage rate. This clause can be
involved if a customer repeatedly requests excessive amounts of toner.


dealers take the time to train the clerk that actually inputs supply orders, to
quickly review the ordering history of each customer before shipping out more
supplies. Attention should be focused on the renewal date and payment history of
each CPC customer. A customer’s agreement that expires next month or pays
slowly should not be shipped 6 months worth of supplies.

  • The
    cost of product must be weighed against the cost of shipping.
    A common
    practice is to ship three months of product at a time. This works especially
    well if the majority of your customers pay quarterly in advance. Common
    sense must be used when providing supplies. The customer who has a low-end
    copier, whose toner’s wholesale cost is $4 per cartridge, can be sent a
    years worth of supplies upfront. Quarterly shipping will cost more than the

customer running 500,000 copies per month, paying monthly in arrears, can be
sent one month’s worth of the $268 per cartridge toner. Special attention must
be paid to high end users. They will become very demanding if they run out of
toner. A delicate balance between their payment history and the amount of toner
they can have in stock must be established.


the early years of a long-term lease, you do not need to worry about sending
more toner than the CPC payments will cover. Toward the end of the term,
diligence must resume. If another company sells new equipment and takes
responsibility for returning the leased machine, you will never see the extra
bottles of toner the customer has on their shelf. At the end of any agreement
that provides supplies, you have every right to be proactive and pickup any
unused products. This can be done with a UPS pick-up tag, or having the tech,
sales rep or delivery person pickup surplus supplies.

  • Always
    issue the customer a receipt for the returned supplies.
    Customers, on an
    all inclusive service agreement, are not entitled to a cash refund for the
    supplies that were not used. The process of giving a receipt justifies the
    picking up of the supplies in the customer’s mind. “Your account will be
    appropriately adjusted” is a true statement that can accompany the issuing
    of a receipt.

  • No
    invoice should be processed for under $100.
    It is not profitable for
    either party to be sending invoices and processing checks for small amounts
    of money. A recent survey sponsored by the Association of American
    Controllers listed the cost of processing a single invoice ranges from $27
    to $72. The cost to receive, authorize, and pay this invoice is similarly
    expensive to the company that pays the bill.

the company, the vendor, nor the receiver of the payment can afford to process
low-end monthly service agreement bills. Educate your customers, your sales
people, and yourself. The billing process is a genuine cost factor in your
business. In many dealerships, the actual invoicing cost is greater than the
price of the shipped supplies.


voice mail message just touched the tip of the CPC iceberg. Toner is a small
part of the total cost of any all inclusive service agreement. The successful
dealer must be ever diligent to all aspects of the service and supply equation.
Know your customer, track payment history, usage patterns, toner cost, freight
costs, expected fill volumes, expiration dates, and profitability. Do not allow
toner to be your company’s weakest link.

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