I have 2 rules in business. The first is to always do great work. Second, a sale is not a sale until I’m paid.
These rules have stood by me time and time again. But I wasn’t always this smart.
When I started out, I hit the ground running, selling print and design as fast as I could. The problem was that my suppliers were looking to be paid before I was. Over-trading is a lesson hard learned in my first 3 months of business. It’s the only time I’ve ever been in debt and I’d not wish it on anyone.
We survived and from that early stage of business, our process for invoicing and cash collection was much more refined. It was never perfect, but it was better.
As entrepreneurs, asking for a sale is often the hardest part of selling, but asking for payment is a bigger hurdle for many. This happens for many reasons, but primarily we’re afraid to upset our customers, for fear they’ll take their business elsewhere.
And my challenge to that is that if they weren’t going to pay you, they were never a customer.
Traditionally, in business, there are payment terms. This is normal practice. In my opinion, it’s outdated. No one goes into Tesco and asks to pay 90 days later.
Of course, this is an ignorant view of business and if I had not received payment terms, I would never have been able to start my own business. I am very grateful of those suppliers who “took a chance” in the early days.
Of course, you need time to use the product or service and to get a profitable return to pay your suppliers. Again, that’s how business works
But I would counter this that 30 days, 60 days or greater is a wholly outdated practice. When you factor in nett monthly (end of the next month), this rarely makes sense. It’s often crippling for small and medium businesses, but it’s forced upon us by those enterprise clients we seek so dearly.
We paid our suppliers on time. We paid everyone we could early before Christmas and we placed fair terms on our clients. This isn’t just business. It’s good business.
Today, I don’t work with a client unless payment in full is made upfront. There is considerable effort in the preparation and discovery phase. I’m a single-person business, and my efforts are better spent supporting my clients than chasing payments. If you can justify payment upfront, partially, or in full, I highly suggest you begin that process immediately. It saves time and money and allows you to put resources into your paying clients.
And yet, I continuously hear people struggling to get paid for work completed months prior. Worse, these clients have gone radio silent.
And this gets me to the purpose of today’s newsletter. How do you get paid for the work you do, when do you escalate this, and when should you take it to court?
When we were focused on chasing our overdue debtors without fail our accounts team wanted to focus on those debts that were overdue for the least amount of time. These are the easy wins.
The longer a debt is overdue, the less likely you will be paid for it. As a business owner, there’s a marriage of getting money in and chasing the really bad debt.
All of this assumes you have set payment terms with your clients when you begin working with them. If not, this should always be communicated first and foremost during any sales discussion.
1. The accounts team should be confirming receipt of invoice +1 day after sending
2. 1 week later, checking that the invoice has been approved for payment
3. 1 week before payment, follow up to confirm that it’s on the payment run
— Assuming no payment on the agreed date —-
4. Follow up with client accounts ASAP. Confirm payment date. Are you happy to accept this? Are there consequences for client service?
5. If this date passes, work should stop immediately and escalate with an email. Too often do we let bad payers run up further debt or assume that late payment is accepted.
6. If payment is still not made 1 week later, escalate this to someone higher in the business or note in a call or email that payment is now requested with 48 hours or you will escalate this.
7. Final warning in writing from a solicitor before small claims.
As someone who had sales and debtors reaching hundreds of thousands of pounds across thousands of clients each month, our process was robust. Pre-payment cancels the need for all of the above.
If I were starting any significant business today, my invoices would be “payment on receipt”, work would stop 3 days later if unpaid, without exception.
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