Accounts Receivable (A/R)
Accounts receivable (A/R) represents money owed to an alarm/security company for the sale of security products or central monitoring services. The A/R department is responsible for generating an invoice to send to the customer electronically or via direct mail, who then must pay it within an established timeframe. This is an important process because it develops a customer payment history, which is vital when determining the multiple you receive when you sell alarm accounts.
ACH
Automated Clearing House (ACH) is an electronic network for financial transactions. When you obtain a customer’s bank routing number and checking or savings account number, the Electronic Funds Transfer (EFT) is processed through an ACH. This is a cost-effective way for a security dealer to process payment transactions while establishing customer payment histories.
Acquisition
Security alarm acquisitions, or alarm company acquisitions, is a corporate action where an alarm funding company, such as Alarm Capital Alliance, buys alarm accounts for sale, or the entire company, from an existing alarm dealer who is selling alarm monitoring accounts or wants to sell their entire security company.
Add/Delete or Online/Offline Report
This report is generated by a central monitoring station and includes a list of alarm monitoring accounts that have been added to, or deleted, from an alarm dealer's central station account over a specific period of time.
Affiliate Program
An affiliate program is an account acquisition program that provides alarm funding for dealers by purchasing a small number of accounts on a weekly basis. Affiliate Programs are the opposite of bulk acquisitions. It may also be referred to as a Security Dealer Program.
Attrition
A reduction or decrease in the number of security alarm accounts acquired from an alarm dealer due to cancellation or non-pay, lowering the purchasing company's RMR. (See definition of "Churn" for more information.)
Auto-Pay
Regular, even payments automated for debit from the source of the customer’s funds, such as a checking account or credit card. The security company is responsible for protecting the customer’s financial information and processing the monthly batch files to the proper financial institution.
Billing Cycle
A billing cycle is the period of time between one billing invoice and the next. Traditionally, alarm companies offer customers several billing options: monthly, quarterly, semi-annually, or annually.
Bulk Acquisition
A bulk acquisition is the purchase of security alarm accounts for sale from an alarm dealer. A bulk acquisition can consist of an alarm dealer's full, or partial, amount of their portfolio of alarm account contracts.
Churn
Churn, or attrition, within the security industry, refers to the proportion of contractual home security customers who stop doing business with your alarm company. It is a possible indicator of customer dissatisfaction, less expensive and/or better offers from the competition, more successful sales and/or marketing by the competition, or reasons having to do with the end of the customer’s home security contract. A churn metric (10%) is used to measure customer retention and company performance. This is an extremely important metric when selling alarm accounts and directly affects your security multiple when you sell RMR.
Contract Renewal Term
At the end of the initial contract term, customers alarm monitoring agreements automatically renew according to the terms of the specific agreement, unless previously cancelled according to the cancellation procedures listed in the alarm monitoring agreement.
Contract Term
Alarm monitoring accounts / agreements continue for a specified fixed period (with automatic renewal terms). The most common contract term is 36-months (3 years). Companies also offer: month-to-month, 12-month, 24-month, 48-month and 60-month terms.
Customer Care
A department within your home security company whose primary responsibility is to provide customer service by handling general inquiries and resolving problems relating to their security system or alarm monitoring agreement.
Dealer Program
A security dealer program is an account acquisition program that provides alarm funding for dealers by purchasing a small number of accounts on a weekly basis. Alarm Dealer Programs are the opposite of bulk acquisitions. It may also be referred to as an Affiliate Program.
Deferred Revenue
Refers to recurring monthly revenue that has not yet been earned, but represents products or services that have already been paid and are owed to the customer. This amount is deducted from the overall purchase price in an acquisition. For example, if a customer is invoiced annually, and has paid the annual invoice amount, and an alarm company acquisition occurs 5 months into that year, 7 months of revenue will be deducted from the purchase price.
EFT
Electronic Fund Transfer refers to any transfer of funds that is initiated by electronic means, such as a computer. Home security customers can make EFT payments from their checking accounts or credit cards.
Evergreen Contract
A contract provision that automatically renews the length of the alarm monitoring agreement after a predetermined period, unless notice for termination is given by the home security customer.
Evergreen Law
Certain states have statutes prohibiting automatic renewal of contracts.
Hold Back
A percentage of the dealer purchase price that is held by the acquiring company until the final close of the acquisition. At the final settlement with the Dealer, reductions may be made from the payment based on certain factors. The main factor is whether or not the Dealer has provided replacement alarm accounts for ones cancelled during the “In Guarantee” period.
In Guarantee
Period immediately following the acquisition date. During this time period the purchaser can return any canceled or non-pay account to the dealer. The dealer either replaces the alarm account with a new one, or takes a payment reduction at final post-closing.
Multiple
This is a term used to describe the rate a dealer is paid, per account, when you sell security accounts / sell RMR during an alarm account acquisition.
Out Of Guarantee
Period following the final settlement date with the dealer after selling monitoring accounts.
PCI Compliance
The Payment Card Industry Data Security Standard (PCI DSS) is a proprietary information security standard for organizations that handle cardholder information for the major debit, credit, prepaid, e-purse, ATM, and POS cards. Defined by the Payment Card Industry Security Standards Council, the standard was created to increase controls around cardholder data to reduce credit card fraud via its exposure. Validation of compliance is performed annually, either by an external Qualified Security Assessor (QSA) that creates a Report on Compliance (ROC) for organizations handling large volumes of transactions, or by Self-Assessment Questionnaire (SAQ) for companies handling smaller volumes.
Post-Closing
Typically, this date is one year from the transaction's Closing Date, and the In Guarantee accounts become Out of Guarantee. At this point, the final post-closing report is prepared in order to determine the final Holdback amount that is due to be paid to the dealer in month 13.
Rate at Risk
If a home security customer becomes 90 days, or more, delinquent, this uncollectible debt is at risk for write-off. (In the event you write-off your "rate at risk," you reduce your bottom line revenue, which decreases your company's value.) Rate at risk is an important metric to calculate and manage within the security industry because a reduction in your bottom line revenue can affect the multiple paid during an alarm account acquisition.
Recurring Monthly Revenue (RMR)
Recurring Monthly Revenue is the total regularly, recurring monthly amount that is billed to a company's home security customers, including monitoring service, maintenance, equipment, etc. (This number is not impacted by billing frequency. If a customer is billed annually, the total amount billed annually is divided by 12 to determine the RMR.)
Steady State Cash Flow
Steady State Free Cash Flow is Adjusted EBITDA less (i) capital expenditures necessary to maintain existing infrastructure and (ii) the cost to replace RMR lost through attrition.
UL Certified
Underwriters Laboratories (UL) is an independent, safety science company that offers certification of alarm systems and security equipment.