Wednesday, November 19, 2014

Getting paid quickly

     Free daily tips, information, advice, and ideas,
     with examples drawn from small businesses.

     In service businesses and small manufacturing operations, you do the work and then you frequently wait to be paid. The wait can be long. Meantime, your payroll and other bills continue.

     This is particularly true when you are dealing with large companies. They have procedures, and your bills get in line somewhere in the bowels of accounts payable departments.

     There are some things you can do to speed up payments to you. Here are three things I have done in businesses I've operated.

     1. Change your terms. Offer a 2% discount for payment within a short period of time. I've used 2%-10 days to good effect. When invoices arrive at a big company's accounts payable department, those offering discounts get quicker attention. For you, it's a way of using their system to prioritize payment to you. You can also use 2%-30 days to good effect.

     2. Set up progress payments. If you are providing significant inputs of labor and materials to accomplish a job that is stretched out over time, set up contractual milestones that trigger partial payments as the work progresses. As project phases are completed, send appropriate invoices, referencing the negotiated agreement. I've used this in a printing operation where big jobs could stretch out over several weeks. Construction businesses use this all the time, as do consultants in various fields. 

     3. Develop a close relationship with the contact you deal with in a big company. This is key. The contact might be a low level manager or a senior vice president. But if you're not being paid in a timely manner, a face-to-face conversation with your contact in the big company can put pressure to get your invoice paid. Calls to the accounts payable department will be of little value to you in resolving the problem. 

     I once had a serious conversation with a senior vice president of a major corporation about this. His company was three months in arrears and still ordering. He had approval authority and he would sign off on bills and forward them to the accounts payable people. There, they would linger. In our conversation, I said to him that I was continuing to provide services, but it amounted to providing financing to his company. He suddenly understood and corrected the situation immediately. 

     In a way, my small company was acting like a bank for his big corporation. By not paying my invoices, they were in effect getting a loan from me. In their scheme of things, delaying payments to many small suppliers results in big effects with them. Big companies do this all the time with their small suppliers.

     Getting paid in a timely manner is crucial to the on-going health of your small business. Don't ever yell at your customer, but use some quiet pressure ways to keep them paying you in a timely manner--and coming back.   

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