July/August  2001

 

The Law
    legal notes

clloyd@lindquist.com

 

Cash Pricing, the Question 
is Not How, But When

by Chuck Lloyd

Cash prices. Just about everybody has something to say about offering cash customers a better price than insurance customers. It has been the subject of magazine investigations, undercover television reports, legislation and even litigation.

Feelings run strong on the issue of cash prices. One side firmly believes it is good business and plans to continue offering cash prices forever. The other side believes offering cash prices is tantamount to insurance fraud and ought to be abolished. My view falls squarely in the middle. (Where else would you expect a lawyer to come down on such a topic?)

In my judgement, cash pricing should not be an issue of insurance or cash. The real question, and thus the business justification for offering cash prices, ought to be: will the job be paid for at the time it is completed, or will there be a delay in payment? For almost every small business, glass companies included, time is money and cash is king. A dollar today is worth more than a dollar next month because you can invest it, pay your bills and avoid interest charges, use it to expand inventory or hire that new employee sooner rather than later. Receivables may be assets, but try paying your installers, your grocery bill or your mortgage with a receivable. Consequently, a job in hand that pays immediately may warrant a better price than work that will not see payment for months.

If you are willing to offer cash prices, you should offer them to anyone who agrees to pay at the time of job completion, whether the payer is a consumer or an insurer. When asked for a price quote, one way to approach the cash price question is to quote the full price for the job, then indicate that payment by cash or check at the time the work is completed will receive a discounted price of “X” dollars. If asked why there is a difference, you can educate your customer about the costs and risks associated with having to wait for your money and the practice by some insurance companies to slow-pay and short-pay invoices. If the payer is an insurance company, so much the better: you have dealt with them fairly and placed them on notice that you expect the same. If the caller is a consumer, perhaps you will have given him a reason to ask some tough questions of his insurance company about claims practices.

Offering cash prices in this manner has several additional benefits. First, it cannot be said that you are inflating your prices when a person has insurance. Second, there is no discrimination against insurance companies, and thus a smaller likelihood that anyone will say the practice constitutes insurance fraud. 

Yet another benefit has to do with price surveys routinely conducted by insurance companies. Few of these surveys bother to reveal who is making the inquiry. A favorite method is to phone a shop posing as a consumer and ask what the price is to replace a windshield in a particular vehicle. If not asked the cash price question by the glass shop, the caller will invariably volunteer that he or she is not covered by insurance, hoping to get the cash price. The problem arises when insurers attempt to base their glass claims payments on the results of these “surveys,” which obviously do not fairly and accurately record prices in different markets. It is akin to the insurance company conducting a price survey of glass shops in Farmerville and using that to make base payments on claims in New Orleans, Seattle, Minneapolis or Chicago. If you have an across-the-board cash price policy, it gives you something to say to the insurer, the insurance commissioner or the court when they accuse you of higher pricing based on the surveys: the insurer did not meet the terms and conditions of the cash discount because they did not pay when the job was completed. Admittedly, you may be able to make that argument without framing the issue as I have here. However, if you base your price on the insurance status of your customer, your challenge to the survey has a whole lot less credibility.

Cash prices, offered correctly, may be entirely appropriate and make good business sense for your company. If based solely on the insurance status of the customer, however, at a minimum, it looks bad and hurts the credibility of the shop. At worst, it may be found to be insurance fraud. On cash pricing it pays to be smart, be careful and talk to a lawyer about how to structure your pricing so you get maximum value out of your program and avoid serious negative consequences. 

Chuck Lloyd is a partner in the Minneapolis law firm of Lindquist and Vennum.

AGRR

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