Friday, February 5, 2016

Getting paid on time

          Free daily tips, information, advice and ideas
          to help you better manage your small business

     If you run a service business or small manufacturing operation, you do the work and then you wait to be paid. The wait can be long. Meanwhile, your payroll and other bill continue.

     It's particularly frustrating if you are dealing with large companies. They have procedures, and your bills can languish in the bowels of their accounts payable departments. 

     You can do some things to speed up the payments process. Here are three things I have used myself in businesses I've operated.

     1. Change your terms. Offer a discount for payment within a short period of time. I've used 2% discount if paid within 10 days. When invoices arrive at a company's accounts payable department, those with discounts get quicker attention. For you, it's a way of using their system to prioritize payment of your invoice. 2%-30 days also works well.

     2. Set up progress payments. This method depends on the business. If you are providing significant inputs of labor and materials to accomplish a job that stretches 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 in resolving a problem--or, in some cases, a friendly call might be of great help. 

     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 invoices and forward them to the accounts payable people. There, my invoices would linger. In our conversation, I told him that I was continuing to provide services, but it amounted to providing financing to his company. He suddenly understood and corrected the situation.

     In a way, my small business was providing financing for his big company. By not paying my invoices, they were in effect getting a loan from me. Big companies do this to small suppliers, the thinking being that they can easily replace small suppliers with others clamoring for the business. Meanwhile, the bottom line of the big company looks better. 

          Getting paid quickly is crucial to the health of your small business.                  Never yell, but use quiet pressure to get paid on time.   

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