Do you have clients that are behind on their bills?
If you do, it’s probably putting a damper on your cash flow outlook. If you aren’t careful, you might wake up one day and realize that you have nothing in the bank.
I used to have a lot of problems with customers paying invoices late. But part of the problem was how I invoiced and the expectations I set.
For the first half of running my agency, I never talked to customers about billing. There was a financial part of my proposals—something about “50/50” on projects. And then my customers would get an invoice that said “net 30” on it because I read in a book somewhere that you should allow 30 days for payment.
Guess what happened?
Every customer would pay 30 days or later, after I sent an invoice to them. Sometimes it would take up to 90 days to collect payment.
By the time I would call up my customer and ask them, “What the hell is going on?” it was too late. Since I hadn’t set very good expectations with them in the beginning, this was a difficult time to start. They had probably already received the work we created, or their site was already live.
What wasn’t very clear to me, at the time, was how much impact this delay of payment has on everything in your business and life.
I would be emptying out our bank account to pay bills. But we would have $20,000 in “accounts receivables.”
Not having enough cash in the bank is stressful. It kept me up at night. I was also forced to make hard decisions about what bills to pay and not to pay.
One time I wasn’t able to pay my power bill for my house—and they shut off the power while I was away for Thanksgiving. I’m not sure if you’ve ever smelled a kitchen with week-old rotting food…
I had had enough.
Standard Operating Procedure
I decided that accounts receivable would never be the Achilles’ heel of our operation. Some changes were necessary.
Goodbye, Net 30
Allowing clients 30 days to pay might work for big corporate or businesses with deep pockets, but my payment is due upon receipt of services (or you don’t get your services). When I am done—or need a deposit to start work, the cash needs to be in the bank. I changed the terms of all of our invoices to: “due upon receipt.”
Credit Card on File
I keep plastic on file for all customers who have monthly services like hosting and software subscriptions. I do allow customers that don’t want to keep a card on file to pay by check, but they must pay for their services up front by quarter or year, not monthly.
Too many projects go over the scheduled plan because clients fail to deliver content or feedback on projects. Keeping 50% of your payment until after a project goes live can sometimes stretch you too thin. I adjusted our large project billing terms to 50% due on deposit, 25% at a mid-point project milestone, and 25% upon go live.
No Dough, No Go Live
Never go live without payment. Every time I make this mistake and just say, “we’ll push the site live, just make sure the check is in the mail,” I regret it. Clients almost always take at least two weeks to make that happen. When they are forced to get you a check prior to seeing their new website, magically checks show up in the mail within 1-2 business days.
Take it Down
If you have repeat offenders, take the site down. If I don’t get paid for a service within 30 days, site comes down. All of a sudden payments show up when websites aren’t up … it’s quite fascinating.
Before I start a business relationship with someone, I always talk about billing. I set the expectation during the sales process very clear and up front. Usually a script like this does the trick:
I’m not a collections company. I do not chase people for payment. I expect payment on time, every time. One of the ways we keep costs low is by keeping our overhead low. I don’t have a billing person. I don’t have a collections person. And if you make me want one, I will fire you before I hire one. This might sound harsh, but I take billing very seriously–can you respect that?
After I got serious about never wanting to wait for payment again, our accounts receivable was always a low percentage of our overall monthly income. There were instances where it came up, but I was able to easily say, “Remember when we talked about how we get paid?”
This never caught a client by surprise, they knew exactly what I was talking about, and payment was always received shortly thereafter.