Do you act like Charles Dickens’ Oliver Twist when the due date on your invoices have come and gone, and you have received nary a payment from your clients? Do you stand there, meekly looking upward, bowl in hand and softly say, “Please sir, I want some more.”
Today, we’re going to start our discussion about small business cash flow management not at the starting line but at the finish line of the cash flow management cycle. We’re going to discuss how to get your invoices paid on time. You may ask why start at the end of the business cash flow management cycle rather than at the beginning?
The reason is simple. With the years I have been in business, I have seen a handful of clients, and way too many of my colleagues in the service provider industry, not get paid or not paid on time. They in turn have struggled to meet obligations because this non-payment from their clients has completely thrown off their own cash flow.
Guess what. You could carefully complete a cash flow analysis for your small business. You could have an extremely clear picture of what your personal cash flow requirements are. You could even be proactive and analyze what you need to do to manage your cash flow, whether the economy is currently in a recession or in recovery.
None of that matters if you are not being paid on time.
All of your small business cash flow management analysis, fancy accounting software, and forecasting goes completely out the window if you are not paid. If you’re not being paid or paid on time, you’ll always be in the feast or famine cash flow conundrum.
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This is why the discussion needs to start at the finish line.
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There are five basic steps all small business owners need take to ensure invoices are paid on time (and maybe even ahead of time).
- Change Your Mindset: Many small business owners, especially newly minted ones, still have an employee mindset. You are no longer an employee. You are running a business that provides services and/or products to other businesses or individuals. You need to start seeing your business with an owner’s eyes, not an employee’s eyes.
- Establish Boundaries: If you don’t know what your boundaries are for your business, then in most cases, you’re allowing others to dictate what happens. This has to stop immediately. If you’re not sure about how to set your boundaries, you can read my article, “Setting Boundaries for your Business and Personal Life.” I provide seven steps to setting strong boundaries.
- Agreement or Contract: Even if you are a soloproneur, you need to have an agreement or contract for your business. No small business owner should conduct business without some type of agreement that sets out the parameters of the relationship. This agreement helps to solidify some of those boundaries you established for your business.
- Late Payment Policy: All agreements or contracts should have a late payment policy clearly stated. This policy should include your standard due date of all invoices. What happens when payment is not received by the due date. What the fees are for late payment or non-payment, and whether services will continue or stop until payment is received.
Backbone Enforcement: This is where your backbone has to come into play. When payment is not received by the due date, don’t wait and hope your client remembers to pay you. Send an e-mail, get on the phone, contact the client and remind the client about needing the payment… now not later. Don’t stop reminding your client. Be persistent — obnoxiously persistent if you have to. This has to be part of your cash flow management strategy.
Be polite but firm and adhere to your late payment policy, no matter what. Ninety-five to ninety-eight percent of your clients will pay you on time. However, occasionally, there will be that two to five percent of clients who will test your boundaries, will try to maneuver you into breaking your boundaries and policies. If they learn they can do it once or twice, they will keep not paying you on time or at all.
This is the best advice I can give you. If a client does not pay you, do not keep providing services in the anticipation he or she will pay you next month. All that does is present your client with an even larger invoice that won’t be paid the following month. Fortunately, in my business, I’ve never had to halt services for non-payment of an invoice. However, I have seen way too many service providers talk about how they haven’t been paid in months but they’re still working with the client. Don’t do it!
Remember, receiving invoice payments on time
is where you should actually start your small business cash flow management system.