The cheque’s in the mail: How to make sure your small business gets paid
It’s the 20th of the month, and if you run a small business that can be a bitter-sweet date. On the one hand, it’s payday, and on the other, it’s when all the invoices you owe fall due. Getting paid on time can be the difference between success and failure. So how can you make sure the money turns up?
Chances are, at some time in your life you’ll end up self-employed or running a small business. While it’s fun to have the absolute freedom to work every hour of every day (as a clever man once said) what can be not so much fun is getting paid. As an employee, of course, money simply falls from the boss’s money tree into your hungry wallet once a month or fortnight. As a small business or sole trader, money isn’t so much a fruit-laden tree as a frisky antelope, pronking across the plain trying its very hardest to not be caught.
So far, so depressing. Running a business of any sort is hard work without the extra burden of hunting money-antelopes very month.
The good news is that it doesn’t have to be that way. I run a small business, and in the seven years we’ve been going (touch money-tree-wood) we’ve always been paid.
My business is an advertising agency, which in some ways makes things more difficult. A lot of the work we do is intangible – and we can’t exactly send the heavies round to repossess those “ideas” you never paid for. But the principles we follow can apply to any sort of small business.
Get fiscal on the first date
The longer you wait to talk about money, the more awkward it gets. So make it clear early on what you charge for and how much it will cost – as well as your payment terms.
Put it in writing
Especially if you’re dealing with a big company, make sure you sign on as a supplier ASAP. This can sometimes take quite a lot of form-filling, and might require you to take on indemnity insurance if you haven’t already. If you skip this, it’s not uncommon to get to the end of a project, send in your invoice, then have to wait weeks while you’re on-boarded as a supplier.
Agree to disagree
Most big companies will have a standard supplier agreement that you’ll both sign as part of the on-boarding process. But just because they drafted the agreement doesn’t mean they have the final say! If there are parts of the agreement that just don’t work for you (such as payment terms, rules about subcontractors and so on), tell the client you’d like to amend them and spell out the changes you want.
Play by the rules
This can be tricky if you want to appear responsive and helpful, but it’s good discipline to never start work until you’ve supplied an estimate to the client and the client has approved it in writing – ideally with a purchase order number if they’re a larger organisation.
Timing is everything
If you’ve agreed that you’ll be paid on the 20th of the month following invoice, make sure you invoice by the end of the month! Let that slip until the 1st or 2nd of the next month, then you’ve just delayed your payment by 30 days.
Divide and conquer
On big projects, you’re likely to have suppliers of your own to pay before the job is complete. One way of avoiding a cashflow crunch is by agreeing up front with the client on progress payments. In the film and television production industry it’s not uncommon to pay a third of the total the day the project is signed, a third the day the shoot begins and the final third the day the finished product is delivered. There are plenty of ways to slice it, but the key is to agree up front, rather than come begging a month in when the money runs out.
We don’t have a full-time finance person in my business. But we have the next best thing: a finance email address. When clients get an email from “finance” there’s no doubt what it’s about. It also means the “finance” email account can be a bit more forthright than our regular client service accounts when it comes to money.
Let the chase begin
So you and your client agreed that you’ll be paid on the 20th of the month following invoice. When should you chase up unpaid bills? How about the 21st? Most times, if an invoice hasn’t been paid on the due date, it’s down to an administrative glitch at the client end. Letting them know the money hasn’t arrived on time will be doing them a favour. And if the late payment is for other reasons, you’ve started a (polite) dialogue and let them know that on-time payment is important to you. (And if these sorts of emails are a bit awkward, get your “finance department” to send them!)
Pay it downward
This one comes down to karma. You hate being paid late? Don’t be a late payer yourself. A client’s failure to pay your business is not your supplier’s problem. Paying on time, or early, is one of the best things you can do for your supplier community.
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