The Anatomy of a Fleet Contract
As the office manager of Arrow Automotive in Azusa, Calif., Brandy Montgomery works to develop fleet contracts for a wide range of clients, from city maintenance vehicles, to smaller, privately owned companies. All of these contracts and agreements are structured differently, and need to be specifically designed for their needs as a business.
On the other end, Patrick Connell, owner of fleet-focused ARS Fleet Service, never has his clients sign a contract, instead working with master service agreements, or MSAs.
Before using these MSAs and thoroughly investigating who he was working with, Connell says that write-offs were high, and court visits with his clients were much more frequent. Now, after setting clear expectations up front with his client base, and getting a strong handle on accounts receivable, Connell says he has liability issues figured out, and doesn’t even use a lawyer to put together his agreements.
Butch Cassell, owner of Portsmouth, Va.-based American Fleet Service, Wilmington, Del., has similarly avoided the term “contract,” and instead employs a similar process of vetting his clients to avoid liability issues, and being sure to offer mutually beneficial services.
Regardless of whether you handle your accounts through contracts or MSAs, there are key ways to make sure you get paid, and never have to see the inside of a courtroom.
To break this down further, Cassell, Connell and Montgomery offer the main points to building an effective service agreement.
Before You Start: Do your research.
In the first meeting, or even before you officially meet, it’s important to pinpoint your client’s most pressing needs, so you can properly address them, Connell says.
“With most fleets, we have a first meeting, which is general needs, what’s not working for you at all, what are the things you like about what you do?” Connell says. “Anything to get a feel of how that company likes to do business.”
Often with bigger companies, Arrow Automotive has to pitch its services, either through an initial contract or a PowerPoint presentation. That means Montgomery has to do extensive research as to what the client’s needs are, and how Arrow Automotive can stand out from other local fleet organizations.
1. Be flexible with your document.
With each contract Montgomery works with, she says the needs will always be different depending on what vehicles you’re servicing and with what type of entity you’re working.
With smaller fleets and privately owned companies, usually the contracts aren’t as detailed and specific. But for instance, when working with Arrow Automotive’s nearby city of Irwindale, the account includes taking care of maintenance vehicles and police pursuit vehicles, which often have a lot more wear and tear.
For one of Arrow Automotive's biggest accounts, the pricing is lower than normal, but Montgomery believes it’s worth the discount due to shop exposure, and the amount of vehicles they would service.
“Sometimes the volume makes up for it,” Montgomery says. “You have to weigh out, if it’s going to be a good amount of volume, and even though you get below cost and markup, and the profit you make is much smaller, you get word-of-mouth, you get positives there.”
2. Pinpoint your services.
Throughout your contract, the shop owners say you should specifically list the services you offer, and how they help to alleviate any pain points your client may face.
American Fleet Services includes specific benefits, like free courtesy checks to make sure everything is legal for a truck to be on the highway, and a shuttle system for the drivers. Cassell has found that many fleet drivers don’t want anyone else driving their trucks, so a shuttle service is much appreciated.
Another important aspect of this is tracking mileage and preventative maintenance. For instance, Cassell includes that if it’s been three months since a driver last had an oil change, his staff will notify the driver if they’ve gone through months without an oil change, which they really appreciate.
“With fleets, tracking of preventative maintenance is huge,” Cassell says. “If you can minimize downtime with preventative maintenance, you maximize the time on the road for the customer.”
In Arrow Automotive’s case, while the specific services, like pickup and dropoff, vary by client, the most important part is outlining which services will be provided in the contract so there is no confusion.
“We might list five specific services, like $85 per hour labor rate, 24-hour emergency or after-hour service,” she says. “This can either be in their contract laid out, or in last page that lists the benefits of working with us.”
3. Don’t overpromise.
While you shouldn’t underscore your abilities, Montgomery says it’s important not to over promise on your services. In the case of government vehicles and entities, there’s an added pressure, and an added necessity to fully deliver on each portion of the contract. Montgomery says she’s seen situations where shop owners have been audited by the federal government because the shop did not follow the rules as laid out by the contract.
“It’s very important to read the contract carefully, and adhere to it while giving clear, warm customer service,” Montgomery says.
4. Have a thorough plan for accounts receivable.
When Connell started with these contracts, he says he missed one important aspect.
“We didn’t do a good job of understanding what they expected from us, and we didn’t do a good job communicating what we should expect from them,” he says. “If you don’t have that understanding, your [accounts receivable] can quickly get out of control. Without that, we never had any leverage to go back and say that we needed to get paid.”
Therefore, Connell learned very early on that as he has these discussions, it had to include some form of payment, and time limits of payment.
Connell makes sure that the payment date is pre-determined with a net 15 payment window, which encourages his clients to pay within 15 days of the month. He tracks and notifies any of his clients if and when they’re a couple weeks past their due date.
To make his business a priority to his customers, Cassell offers an incentive to have his clients pay early. He offers 2 percent off the monthly payment if it is submitted in 15 days, and the full price if they submit within 30 days.
“During the meeting, you usually have either the owner or the top accounting person,” Cassell says. “When they hear they can get 2 percent off in 15 days, that counts for a lot.”
In Montgomery’s case, she makes sure to pay close attention to the account, and what the invoice submission instructions are. While most of her smaller clients pay around net 30, other larger contracts can pay anywhere from net 60 to net 90 days. She says it’s important to be prepared for that, and try to arrange your cash flow around these payments.
Again, with these accounts, Montgomery weighs out if the volume of the account is worth it for the time it may take them to pay.