Discounting Past Due Contracts

When I was publishing Martial Arts Professional magazine, we sold advertising to clients who wanted to reach and sell to our readers. Occasionally, an advertiser wanted to cancel the contract. In the publishing world, the process for doing this is called “shorting the contract.” 

In exchange for committing to a set number of ads, the advertiser was given a discount for each ad. Shorting the contract meant that the ads the guy ran would be re-billed at the one-time rate and, if he paid the difference, we would release him from the contract. 

For instance, if he committed to 10 ads at $2,000 each and cancelled after five, he would have paid us $10,000 of a $20,000 contract. However, had he purchased those ads one at time, the cost would have been $2,200 each. So, if he wants out of his contract, he would pay the difference between five ads at $2,000 (what he paid) and the single run price of $2,200. This would be $200 x 5 = $1,000. He would pay the $1,000 to “short out” his contract. It would be a fair deal for both of us. 

You can use this idea in a similar fashion in your martial arts school. Say a student is halfway through a 12-month agreement at $100 per month and stops coming to class and paying. You can offer the student the opportunity to make the agreement good by letting him buy out the balance at a 40-percent discount. 

In this example, he has $600 left, so a 40-percent discount would be $240 off, leaving a new one-time balance of $360. He would be allowed to return to class with all privileges and will also avoid having the billing company breathing down his neck (good motivation). 

You may have to send a portion of that to the billing company (they will usually take it as a credit on your next check), but it’s worth it. You got money that you most likely would not have, and your student is back in class and appreciative that you were willing to help him through a jam.

Discounting an Active Agreement

Read this only if you will not get greedy and sabotage your monthly cash flow for the lure of quick cash. 

You can use this same strategy on a few students each month to boost your gross. Be careful that you don’t offer it to more than just a half-dozen students. This is just one revenue stream. If you overuse this stream, it will dry up along with your monthly receivable stream. Keep the cash flowing! Remember, this is just to help your monthly tuition, not become your monthly tuition. 

Call the student and tell him you have an opportunity for him to continue training at a significant discount. If he is interested, set an appointment to meet. Don’t name the price right away, as he may reject you on the phone. Be prepared to do a little selling in person – just a little though. 

Tell him to bring his payment method, as you only have a few of these to offer, and once you reach your number, it’s gone. If you decide to do this, you need to do it right away, as we have only three of these. This is a true statement, because you want to offer this to only about six guys, of which three will probably go for it. If he asks why just three, you can honestly tell him, “Occasionally, I pick a few guys I know are doing good in classes and are here for the long haul. I think you are doing great, so I thought you would appreciate the opportunity to train at a discount. Of course, this is all confidential, but if you want to go over it real quick, we can do it before you come to class tomorrow/tonight.” 

If the student wants to do it but can’t quite swing the payments, make it a 20-percent discount with as few payments as the student will agree to. If he has a $1,000 balance and can’t cut a check for $600 today, but really seems hot for the idea, tell him you can offer him a short-term payment plan for $800. Ask him how much he can put towards the $800 today. 

Whatever he pays, work out the shortest time frame for the balance. He may say $300. “OK, how long do you think it would take to finish it?” (“Finish it” sounds easier to do than to “pay off the balance”). Try to get him done in the next two months. You can explain this is designed for 90 days, which would be $250 per month for the next two months. Then he is finished with this program and can focus on his training. 

This option may not be 40 percent, but $800 is still $200 less than $1,000. You can, of course, increase or decrease the discount level, depending on your situation. 

To whom do you make this presentation? Depending on the situation, this may work best with a drop-out-risk C student. If a student is going to drop out, they may see this as a chance to “get out of the contract” at a discount. For you, it may present a chance to collect far more tuition than you would have had the student just dropped and stopped paying. 

This is especially good for December when new enrollments are slow but typically jump in January. December is a good month to offer students the opportunity to cash out the balance of their program for a discount. I used 40 percent in this example but that may be more than you need to offer. As usual, the market will tell you what that figure is.