The Check Is In The Mail?
Recently I talked about how a solid accounts receivable process is one of the key pillars of successful money management and dependable cash flow.
It's not enough to know you want to get paid, and it's not enough to set up a couple of channels for that cash to flow through. You also have to work on your timing. Unless you run a brick and mortar retail store or a straightforward e-commerce business with regular, predictable cash in flows, chances are when you get paid is almost as important as how much you're paid.
TERMS OF PAYMENT
It's important to establish your terms of payment up front. That's as true for service providers as it is for manufacturers and raw materials suppliers. Even the medical community generally knows where and about when the money is going to get to them. That's why they ask for your insurance card on the way in and not on the way out.
ASK FOR A DEPOSIT
If you're in a service industry one practice that can protect you is to require a deposit, either through an advance payment or by securing a credit card.
A last minute cancellation is an opportunity cost, because if you had accepted a client who showed up and paid, you wouldn't be out the time and money that cancellation represents. This is particularly painful if you have to shell out resources in preparation for that client appointment. Let's face it, even lawyers usually start with a retainer.
If your business model is based on larger projects that develop over time, consider breaking the job up into smaller steps or milestones and then billing on a progressive basis. This sort of billing setup serves a twofold purpose: it reduces your exposure to financial risk should your client change his or her mind, and it also makes clients feel more comfortable when it comes to committing to long-term big ticket projects.
Late and missing payments are the bane of many a company bottom line. No matter how carefully you vet your customers, once in awhile you too may find payments missing.
Rules number one through three: 1) communicate, 2) communicate, and 3) communicate. Often a missing payment is simply due to a mistake or an overlooked bill, a situation that when brought to your customer's attention can be resolved easily without rancor or damaging your relationship.
Communication also leaves room for you to explain the benefits of keeping your business relationship solid and intact. And if it turns out your customer is having financial difficulties, reach out to them proactively and keep an open mind. Taking the time to come up with a creative solution that results in recouping your monies while maintaining a solid relationship with a once and perhaps future good customer is well worth it.
Unfortunately, calm and profitable solutions are not always available. In that case you'll have to bite the bullet and decide how long you're willing to wait. Then, prepare yourself to stay on top of the situation. If you ever hope to get paid you at least have to keep sending out invoices and statements.
The final step, of course, is turning the situation over to a third party such as a debt collector or lawyer. But be warned, debt collection agencies can eat up to 50% of the recovered amount, which is usually only a partial payment. And before you start thinking of suing, understand that you will spends thousands in legal fees in the hopes of winning a judgment against your delinquent client. And you'll still have to figure out a way to collect what's owed.