One aspect I enjoyed about owning a mortgage company was never having to chase receivables. Escrow would close and money would be wired straight to my account. But now as a consultant I regularly deal with the challenge experienced by most companies, chasing dough.
Receivables are a delicate matter. Most companies would like to pay on time but business today is hard and cash flow can be tight. Most likely the owners that are behind are not deadbeats. They are simply prioritizing a shortage of cash that could possibly happen because they aren't getting paid on time either.
If you need the money and the relationship you have to tread lightly. Rather than using punishment like late fees and guilt trips, I like to take a straightforward approach. First I establish clear dates for payment and tie deliverables to that date. That way we swap the check for the final deliverable.
A more proactive method is to offer a slight benefit or discount for paying early. If they are managing profits as well as cash they may appreciate a 5 percent discount for being diligent. Of course the easiest way is to let them use a credit card. You'll pay the fee, but you can make sure payments are steady and they will appreciate you as they rack up the points. they might even buy you lunch.
Here are additional insights from my Inc. colleagues.
1. Establish a path to payment with internal allies.
I am fortunate to work with the most amazing accounts receivable person, who happens to be my wife. Under her oversight, my companies have always been paid. When I thought back through the history of the different companies, the total dollars managed and collected nears $50 million. So I asked her how she goes about this amazing track record. Her response:
"My experience is that 'honey works better than vinegar' every time and establishing a personal relationship or friendship with someone on the client side is crucial to securing timely payments."
Once a relationship is established and when a customer does fall behind, I can send a friendly e-mail to my contact providing the information regarding any invoice that I have attempted to resolve with the accounting department. After receiving this email, the contact is typically embarrassed by the situation and will escalate the invoice for payment and shepherd it through the payment process. Patience and diligence is important to maintaining the proper relationship--you can't get flustered or demanding. Most companies fail because they wait until there is a problem before trying to establish an internal advocate." Eric Holtzclaw--Lean Forward
Want to read more from Eric? Click here.
2. Use leverage.
I always get furious when people don't seem to understand that this is how I make my living and I need to be paid in a timely fashion. But...getting mad is useless in these situations. Most do pay up before I get around to sending that certified letter. One slow-paying client was a website whose owners had plenty of money but hated parting with it. Fortunately, this was a regular client. So if I hadn't been paid for one job by the time the next one arrived, I'd tell them I'd be happy to turn in the work--as soon as my previous invoice was paid. Worked every time. Minda Zetlin--Start Me Up
Want to read more from Minda? Click here.
3. Cut your losses.
Occasionally I consult on a pay-per-performance basis; when my client makes more money so do I. In one instance a client refused to pay the full amount because he encountered unanticipated repair expenses. Our agreement did not include an allowance for company expenses. Revenue is revenue. I stood my ground but saw the writing on the wall; he had no intention of paying. Rather than get caught up in the negativity I let go of the client and invested the time in prospecting. In the end I made much more money with my wonderful new clients. Oh, and the guy who refused to pay? He's out of business. Marla Tabaka--The Successful Soloist
Want to read more from Marla? Click here.
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