Question:
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Ken,
First off let me say that this newsletter is the best newsletter I have ever subscribed too! I look forward to it every time. Love the discussion.
My question is as alarm dealers, are we required to prorate monitoring service? If we bring a customer online in the middle of the month are we required by any law to prorate the service for that month or can we charge for the full month no matter what day of the month we begin monitoring?
Thanks,
Justin
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Answer:
Thanks for the positive reinforcement, and the topic.
Whether you are required by law to prorate your recurring revenue charge [whether it be for monitoring, service, inspection, lease] may be governed by a state statute, but I am not aware of any. Anyone know of one?
My Standard Contracts provide that recurring charges begin on the first day of the month following the execution of the contract. If the system hasn't been installed by then it's not uncommon for the alarm company to either waive payment or start the term once the system is operational. Incidentally, every Standard Contract provides for recurring revenue except the Sales Contract and Fire Alarm Sales Contract.
I don't think most subscribers will like the idea of paying the recurring charges before the service begins. So even if the contract reads that way, enforcing that provision isn't going to win you alarm contractor of the year.
You may wonder why the recurring charge doesn't read that it starts upon installation or activation of the alarm service. Many contracts do read that way. We changed that provision because we had problems with collection cases when the subscribers claimed that systems were either not installed or were not activated, and therefore the recurring charges never started.