I have been in business since 2001 and have seen it all when it comes to handling a small business from operating with a hand shake to contractual agreements. One thing that I have found is that if you operate loosely with clients you are more likely to end up writing off bad debts and wasting time performing collections tasks.
With the economy drawing down and many businesses stretching themselves too thin financially, it is easy for a small business to not get paid for work performed. I did several things this last year that has significantly improved my cash flow and I thought I would share them with you to see if they might help you too.
1. I only operate from a contract. No more smile and handshake deals. I don’t move until I have a signed contract and money up front, no matter what pressure is put on me. You will never have more leverage to get the details completed if you do not make a move until the client has those out of the way. If you have ever started a job and then had to chase down a deposit or had to really work to get a contract signature, you know what I mean.
2. I changed how I bill. Now for blogging services and AdWords services, clients will pay in advance of the month’s services instead of after services have been rendered. This has significantly solved many problems I had with slow pays or no pays. In fact on blogging where we have had issues of bad debts not being cleared, if you don’t pay us by the 10th we just stop until you pay. No more writing until the end of the month adding to a bill that we have to turn over for collections.
3. I hired a collections firm to collect for my firm. For me personally, I hate to call about money. There is no faster way to stress me out than to have to chase my money down from a customer. I had several bad debts last year and although the collections agency couldn’t collect on them either, at least I was out of the loop and could focus on other business needs instead of stressing about having to call or write to try to get my money. I do take it personally when someone does not pay me and I never welch on paying my contractors even if I have not been paid.
4. I integrated a credit card processing system in with my accounting software. Now I can charge a credit card from my desktop software easily and quickly. My credit card processor debits my checking account once a month for all bank charges which has also cleaned up my accounting process.
5. I encourage clients to pay me by credit card and use my auto billing services. Here we regular mail a statement with invoices and then on the 10th we auto bill their credit card for the statement amount. This has significantly improved my cash flow. Slow payers now pay by credit card and I process their card from within my accounting software so I am always paid on time. Additionally I now have more time for work as I have less time corresponding with clients trying to get paid.
6. Tightened my credit policy. I send reminders to slow payers. If I don’t get paid by the 20th, I assess a $5 late fee and if I do not get paid that month, I send out a credit card authorization fee for future billing to move them to our auto billing program and consider stopping services for the client all together. There is no point in providing service for a customer if you cannot be paid for the services rendered within your contracted terms. I am simply not a good match for businesses who want to pay on 60 or 90 days terms. Our terms are net 10 days.
These new policies have really helped my business to stay profitable in tough times. Additionally I have more time to service my clients, have a better attitude and less stress, and always have money to pay my seven contractors on time without fail. Yes there may be an issue occasionally in regards to getting my money still, but now that is down to one or two customers not ten or more, that I have to chase around to collect my payment. You may want to consider changing some of your own business credit policies with today’s times.