By Adam Steele, owner of Loganix.
Stabilizing your cash flow is critical if you want your business to survive the first few years. I learned this the hard way. My first business nearly failed because some of my most important recurring clients didn't pay by the agreed upon due date. In most cases, they didn't even intend to cancel my services or pay late. They just occasionally forgot the date, had the wrong information or felt that it wouldn't make a difference to delay payment. I couldn't afford to lose clients at the time, so an ultimatum was out of the question. But every time it happened, it caused a minor emergency for me and my fledgling company. Something had to change.
Taking control of my cash flow again required me to develop some new habits. I think the following advice works well for entrepreneurs at the beginning of their journey, who may be nervous about boundaries when having invoice disputes with clients.
State Your Policy Unambiguously
The first, most important thing you can do is make sure there can be no misunderstanding when it comes to your payment policy. It should be easy to find on your website and on your written agreements, and it should be as strict as possible. It won't always be necessary (or wise) to enforce your policy to the letter, but simply having it stated will make the difference in many cases.
In addition to the policy, make sure you make the procedure for paying as clear as possible. Include specific instructions for how to pay, which payment service to use and what forms are best. Remember the adage, "you teach people how to treat you." If you establish your policy early and clearly, your clients are more likely to abide by it.
Create and Automate Payment Reminders
Payment reminders are a small step that can make a huge difference. For me, sending out a reminder every week, starting three weeks from the due date, cut the number of clients who paid late by half. You don't want to come across as pestering your clients, but a formal reminder that gets sent out automatically is rarely interpreted that way. To keep this from being a time sink, create form emails that can be used for every account and prepare the reminders to be sent out automatically based on a schedule the day you sign the contract.
Move to Quarterly or Semi-Annual Payments
If you have recurring clients, moving from a month-to-month invoicing schedule to a quarterly or semi-annual schedule can provide a shocking amount of relief. In my experience, clients were eager to switch to this system because their in-house budgets already worked that way. By billing at the beginning of the quarter, I was able to catch them around the time they were already planning all their big expenditures. They no longer had to fish around for mid-quarter money and I no longer had to fret about invoices once every month.
It's Never Too Early to Get Started
Getting a handle on your invoice payments can save you from a tremendous amount of stress. Just by clearly stating your policy, sending reminders and moving to less-frequent payments, you can make your cash flow more stable. After that, you're ready for real growth!
Adam Steele is the owner of link-building agency Loganix. Check out his YouTube channel The Steele Entrepreneur Show.