This was a question asked by a small business owner on one of the business networking platforms hang out on, and I thought it worthy of a blog post.
It's difficult for small businesses to carry large accounts over months or even weeks. When one or two person teams dedicate large swaths of time to a project, cash flow can dry up pretty quickly even when there is a hefty advance. Here are some thoughts:
1. Consider the contract and client.
Most large companies will have a 6 week or more accounts payable turnaround. For example, one of my clients for a few years was Kal Tire. Their payment turnaround was never shorter than 6 weeks. If you consider the client before committing to a project, you may reconsider bidding on the contract. Even though a contract can look inviting with its large payout, smaller jobs that pay more quickly will keep your sub-contractors happy and your coffers full.
2. Careful planning.
If you do sign with a large company, you can discuss their pay cycles ahead of time. This can be written into your contract. A startup advance (and don’t start up until you get it) and incremental payments during the project can help keep your money flowing. This is also useful with any contract over a certain sum, no matter who the client is. Some clients are willing to hand you a pile of post dated checks but in modern times this is less likely (who uses checks anymore?).
3. Be a squeaky wheel.
Likely most of your online services automatically send you notices when payments are due and continue to send them until you’ve paid. This is how robots manage and I think it’s ok for humans to do this as well. Typically I’ll give a client a bit of flex time, but then I’ll resend the invoice a few times and if that doesn’t work I’ll find them on social media. It’s all very polite - of course they must have forgotten, or they must have misplaced my bill, etc.
4. Offer options.
If it’s clear a client is truly struggling to pay their bill, I’ll offer them payment plans and options. Pay me 25% now, and 25% next week - etc. Small amounts will eventually add up to the total. I also offer to come by their house after hours to pick a check up and this has worked many times.
What I never do is threaten a client. I always assume they want to pay but there are barriers. The solution is to open a dialogue and together payment can be sorted. This has been true, over 35 years of business, except in one instance. And that time, we went to court. In the end we received .50 on the dollar and I guess that was better than nothing.
Hope this helps!
Jude Goodwin, owner