I am seeing and hearing a lot of noise at present around late payments from clients and issues collecting aged debt.
In most cases, the work has been done and for one reason or another, the payments are delayed, causing anxiety over cash-flow and straining the client relationship.
This problem will only get worse in the current climate unless you change your approach.
I have been there.
Many years ago, a retainer client made excuses for not paying an invoice for the previous months work. They promised a payment soon and cited cash-flow challenges. Before I knew it the month end was up and they owed me two months with similar excuses. By the end of month three, there was clearly an issue and guess what – the business went into liquidation and I received zero.
At that point, I changed the way I invoiced to always be paid up front and now, rarely do I commence work until the money is in the bank. Some potential clients don’t like this but I am not prepared to take the risk again.
I am working with a client right now. Her clients were never paying to terms (for various reasons) and she was constantly worrying about having enough funds to pay the wages and spending too much time chasing debt.
We changed the system.
She now has no overdue debt. All existing and new clients are now on a direct debit mandate with the system set for money to be cleared and available as and when needed. “I have slept for the first time in months knowing that the money is there to pay wages”, she said with a huge smile on her face.
So, when is a client a client?
When hands are shaken? No.
When the contract is signed? Erm… no.
When the work commences? No.
When the work is completed. Still no!
A client is only a client when the money is in the bank.
Unfortunately, I hear many excuses to justify why small businesses are taking risks with their cash-flow for work delivered. I do think that for many, it calls for being tougher with what you will and won’t accept, being prepared to walk away from ‘good’ business and realising that the last thing you should be doing is completing work first, on the hope you get paid at the end.
Why would you take the risk?
If a potential client won’t agree to payment up-front or signing up to a direct debit mandate without a legitimate reason, then you have to question why is that.
Ensure that your client onboarding process is robust and accommodates this and don’t compromise unnecessarily.
Your systems strategy not only automates areas of your business but also improves service levels and removes risk.
On a related note, (whether you get paid up front or not) in the current climate, it is wise to get all new and all existing clients credit checked regularly so you can anticipate any future issues.