I have spent the last couple of weeks, chasing up a very slow paying client. This client has spent a considerable amount of money with us over a period of time. The cost to us was not only the outstanding money, but my time chasing them up, and the stress of conflict that I, like most of you, try and avoid.
Last year they came to us asking for extended credit terms which we agreed to as they are a big client and are bringing us ongoing work. Twelve months on, while they had paid some of the money, the new work meant that there credit was getting bigger and bigger and many of the invoices were 4-5 months overdue.
So it all came to a head two weeks ago when I let them know that we could no longer do any work and would stop all jobs in progress until outstanding invoices were paid.
Well you would have thought world war three had started. All of a sudden we were the bad guys and were accused of 'blackmail'. All for wanting to be paid for the work that we had undertaken. The end result, all invoices greater than 30 days have been paid.
Will this tarnish the relationship with this client – sure, but a client is not a client until they pay you. If a client won't pay you within your agreed terms, then there is no relationship to start with.
Cash flow is the lifeblood of any business, and many businesses showing a profit on paper have gone into liquidation because of cash flow.
So here are some tips to keep cash flowing into your business.
- Decide what your terms are (eg COD,14 days, 30 days)
- Give different terms to different clients. New clients should have shorter terms and once they have prooven themselves they can get better terms.
- Set a maximum credit limit for each client. i.e. Don't let them continue to buy your products and services if they already have outstanding debts from buying other products and services.
- Be quite clear in communication the terms and credit limit to the customer so there is no misunderstandings when you start chasing them for the money.
- If giving a client credit, always get them to complete a credit application and if possible a personal guarantee.
- Get as much payment up front and through the milestones of the project. This will improve cash flow, minimize the amounts of money that you may have to chase up, and will allow you to stop the project midway if they haven't paid.
- Offer a discount if entire amount is paid upfront.
- Have a solid process on reminding people about due invoices, overdue invoices, and escalate these reminders. We use email on due, email on 7 days overdue, phone call from account manager on 14 days overdue and letter from solicitor on 21 days overdue.
- Don't make exceptions, a client that can't pay within the terms should be asking for an extension, not making excuses about the accounts person only working 3 days or the cheques in the mail.
- If you give an extension, be quite clear with the client on what date they will be paying the invoice. The day before give them a reminder and if not paid within 7 days of that date issues a letter from your solicitor.
Sounds a bit harsh doesn't it, but it is just a process and when followed, your good customers will respect it and your bad customers will go somewhere else.
It's all part of getting a better quality of client. That's what really separates successful, growing profitable companies from mediocre plodders.