When we introduced our billing system we tried to make things as easy as possible on the customers. One of the ways we did that was to automatically spread any underpayment across all future installments. So, if their payment had been $100/month and they missed a month and had four payments left, the remaining payments would be $125 each instead of $100.
You might or might not be surprised by how many confused calls that created.
We definitely were surprised. We had tried to be nice, but in doing so we had made things too complicated. So we’re returning to simple. As of now, if the insured’s bill is $100 per month and they miss the bill (or under-pay the bill), the full amount they missed will be added to the minimum due on the next installment, exactly the way it works on pretty much every other bill (credit card, utility, etc.).
We’ve also found that a small number of customers cause the majority of late payments, cancellations and reinstatements. To encourage those customers to keep on schedule, we’ve introduced a $9 late fee. It will be applied to any invoice that is not paid by its due date.
Late payments and under-payments cause lots of problems and significant service expense and issues. These changes will minimize the number of customers who receive cancellation notices or otherwise require additional special handling, and should make understanding the billing much easier for both you and your customers.
We know retaining customers and preventing unnecessary additional interactions is important to you. We look forward to these changes helping reach those goals.
I think that is great that’s the way it should be good job !!!!!!
Thanks so much for the feedback. We really appreciate it!
In previous business systems, have incurred the same problems in consumer understanding.
Now……with the $9 late fee….you will be challenged with what transaction to make if all principal/payments are made…but late fees omitted and leaving balances due prior to end of term.
Do you cancel for late fees only? Usually an interesting debate, and can get legal depending on what the State and Statutes say!! MAKING THINGS SIMPLE IS HARD !!!!!!!
Excellent point – those kinds of situations can be difficult to handle. In our case fees and taxes are all always fully earned, so any received payments are automatically applied to those first.
So if someone owes $109 because of a missed $50 payment plus a current $50 payment plus a $9 late fee but only pays $100, the late fee is paid first and the remaining $91 is applied to premium. Then, because they didn’t pay the minimum due, another late fee will be applied, and another invoice generated for the shortage (which will now be at least $25 – the $9 unpaid premium plus a $9 late fee plus a $7-$10 installment fee).
Any unpaid amount reduces their equity and will result in a cancellation. Hopefully very few customers will learn about this the hard way.
Does the late fee also apply to the downpayment? Since the downpayment is a larger sum than the monthly installments, some clients unable to pay the renewal downpayment billed prior to the renewal date are aware that they have days before the actual date of coverage goes into effect and wait until then to make payment.
Thank you for the excellent question!
Yes, the down payment is larger than the other payments, but the insured already has a lot of time to prepare for that. Take a policy that renewed 1/1/2013, for example. Its last installment is due 9/15. Then no payment is due in October, then November 1 we issue the renewal, with a bill due 12/15. So while the 12/15 payment is larger than the 9/15 payment, they already have a full 3 months to prepare for it.
We are also in the process of making the renewal down payment smaller than it has been previously. It will still be larger than a normal installment, but you should definitely see the difference.
To answer your question directly, though, the late fee does not apply to down payments. So, yes, your insureds could decide to wait until their effective date, giving them 3.5 months to pay if 3 full months is not quite enough. But (in this example) their next installment is due 1/15. So if they wait until 1/1 to pay the policy, now they only have two weeks to come up with a normal installment payment right after paying the down payment.
A much better option would be for them to make partial payments before the effective date, as long as the total paid by the effective date is at least as much as the minimum down payment. Our system can accommodate that and they won’t incur any fees or have to worry about two full payments so close together.