Independents, sole proprietors, freelancers… anyone who deals with minimum cash flow knows the anxiety that comes with a client or customer who doesn’t pay. You can put “net 10 days” on your invoices, but most of the time it’s ignored by both big business clients and small business clients.
As an independent myself, I face these same challenges. In large companies, the red tape is long and knotted – and if there’s just one little hold up in the approval process, you can be waiting 45-60-90 days for payment. It eats up a lot of follow up time that could be better spent on building your business, not serving as bill collector. Sometimes you can plead your case and get paid quicker, and sometimes you have to resign yourself to their system.
As an independent myself, I face these same challenges. In large companies, the red tape is long and knotted – and if there’s just one little hold up in the approval process, you can be waiting 45-60-90 days for payment. It eats up a lot of follow up time that could be better spent on building your business, not serving as bill collector. Sometimes you can plead your case and get paid quicker, and sometimes you have to resign yourself to their system.
However, a handful of small business clients ignored my “net 10 days” invoices, too. As my Accounts Receivables grew, so did my anger. So, instead of just sending “past due” notices, I got on the phone (something that is hard for me to do since I’m pretty non-confrontational) to ask, “What’s the deal”?
The majority of the responses I received all boiled down to one, domino-ing reason: “I can’t pay you because my customers aren’t paying me.”
The majority of the responses I received all boiled down to one, domino-ing reason: “I can’t pay you because my customers aren’t paying me.”
Can I understand this explanation? Yes, most definitely.
Will I accept it? No, most definitely not!
Will I accept it? No, most definitely not!
It doesn’t matter how much compassion I feel for another business owner, my priority is to my business and the people who rely on me to keep it running. I cannot – correct that – I WILL not allow a client to pass his/her money problems on to me. I find ways to pay my bills, even when clients aren’t paying me, and I expect the same from those who owe me money.
Here are the two solutions that helped me take more control of getting paid and could help you, too:
1. Establish a Merchant Account:
Whether you sell products or offer services, establishing a merchant account is the easiest way to ensure you get paid.
A merchant account, in my view, is the top headache relief medicine for any small business owner. The small percentage you are charged for each transaction is a pittance compared to the time, postage, worry and frustration of constantly sending out reminder and “past due” notices.
This one action has eliminated 99% of my accounts receivable problems. If you initiate very few transactions or don’t want to go through the hassle of working through a bank to establish an account, the easiest way to accept credit cards is through PayPal.
A merchant account, in my view, is the top headache relief medicine for any small business owner. The small percentage you are charged for each transaction is a pittance compared to the time, postage, worry and frustration of constantly sending out reminder and “past due” notices.
This one action has eliminated 99% of my accounts receivable problems. If you initiate very few transactions or don’t want to go through the hassle of working through a bank to establish an account, the easiest way to accept credit cards is through PayPal.
2. Get Signed Payments Agreement:
So what about the clients who do not have business account credit cards, or simply choose not to use them? State payment terms right up front. You must let people know immediately what your expectation for payment is. For example:
In a retail business, cash or credit card payment is the norm. If you stick with simply having a merchant account for the major cards, you will have few problems. If you have a store credit system or “house” accounts, then you are leaving yourself open to greater risk. Make sure terms, limits and conditions are stated – and enforced. If there is a late penalty, make sure it’s immediately charged. If a payment is missed, further credit will be suspended until the account is up to date. If you fear losing the business of someone you consider “one of my best customers” but they owe you thousands of dollars, how good can that customer possibly be?
In my business, a typical project can span a 3-6 month time frame from start to finish. However, just as it would be unreasonable for me to ask for total payment upfront, it would also be stupid of me to begin a project without some monetary commitment. So, I use an incremental payment agreement that is presented at the same time I submit my project proposal. When the client signs the agreement for the project, he/she is also signing the agreement for payment that is tied to the delivery of the work. No payment–no delivery. Period.
In a retail business, cash or credit card payment is the norm. If you stick with simply having a merchant account for the major cards, you will have few problems. If you have a store credit system or “house” accounts, then you are leaving yourself open to greater risk. Make sure terms, limits and conditions are stated – and enforced. If there is a late penalty, make sure it’s immediately charged. If a payment is missed, further credit will be suspended until the account is up to date. If you fear losing the business of someone you consider “one of my best customers” but they owe you thousands of dollars, how good can that customer possibly be?
In my business, a typical project can span a 3-6 month time frame from start to finish. However, just as it would be unreasonable for me to ask for total payment upfront, it would also be stupid of me to begin a project without some monetary commitment. So, I use an incremental payment agreement that is presented at the same time I submit my project proposal. When the client signs the agreement for the project, he/she is also signing the agreement for payment that is tied to the delivery of the work. No payment–no delivery. Period.
No comments:
Post a Comment