Make your slow-payers an offer they can’t refuse
Cashflow is King is one of the maxims of business. There are other things that are important in business but Cashflow is bit like the legs under the table that everything else sits on.
I have a very good friend who has a small business that relies on his expertise. Clients come to him to resolve very specific and very complicated challenges. The people my friend works with are artists, promoters, designers, producers. The art world in other words
My very good friend is a bit of an artist himself, to be honest. But he’s also an absolute expert in his field. As a matter of fact there are few, very few, people with his level of expertise anywhere in the world.
So clients come to him when they want the best help in the world, when they want their project to win the big international prizes and when they want every single little detail seen to perfectly.
Given it’s a small niche that my friend operates in, a tiny one in fact, I’ve been surprised to see over the years how well my friend has done for himself.
But he continues to have cashflow struggles, every year again.
I found out why, the other day.
Being the last one to get paid
My friend doesn’t have payment terms or a collections system. And consequently, some of the people in the art world who are his clients, use him like a doormat. Time and again. Every year some of his clients think it’s ok to pay him last, after everyone else has been paid. Sometimes he doesn’t even get paid at all.
My friend doesn’t like systems. He doesn’t like bureaucracy and he doesn’t like policies. And he especially doesn’t like implementing systems to do with money. He operates in the art world and in the art world, money is treated as a necessary evil at best and as the devil’s spawn at all other times.
I get it. The people who engage him may be at the top of their game, but most of them don’t make enough money to pay the rent. They’re struggling artists. And my friend empathises with them and more importantly, he believes that part of what his business is on this earth for, is to facilitate the presentation of important art to the world.
Cash is the food in your business
That’s his Purpose, and as those of you who’ve read some of my musings in the past know, the Purpose of business isn’t about making money. I like to quote John Mackey, the founder of the multibillion dollar company “Whole Foods Markets” in the USA. John Mackey says that money is like food for a company. The food it needs to live and fulfil on its great Purpose on this earth.
Without food, adequate nutritious food, the company cannot fulfil on its Purpose.
My friend’s business must make money, cash, so that he can present the important artwork he’s involved with to the world in the best possible light, and so that his company can continue to do so for many years to come.
In our society, there simply is no other way.
And that means, my friend must put in place payment terms and collections systems and stick to them.
Sample payment terms
It’s a simple matter of adding a couple of standard conditions about payment to each proposal and each contract such as:
- 50% of each contract is paid up front.
- 35% is paid before delivery of the work.
- 15% is paid within 7 days of completion.
These are normal commercial terms. The promoters and producers and designers will recognise them for what they are, because if they are professionals themselves, they most likely have similar terms in place in their own contracts.
Once implemented, my friend needs to stick to those terms religiously and run a collections system as well.
A simple collections system
A collections system can be very simple, in the above example of 7 days payment terms, it could look something like this:
- On day 8, a friendly reminder email goes out, asking if the invoice has been received and attaching another copy of the invoice. (Use a standard scripted email template)
- On day 15, a phone call is made and a commitment is asked to a date by which the payment will be made in full. (Simple script for the phone call, so you avoid the awkwardness)
- The day after the date the client agreed on, if the payment has not been made, a final demand is sent by email, with a date by which the payment is to be made and stating that: If payment is not made by that date, the debt will be forwarded to a collections agency, and that any collections costs will automatically be added to the outstanding amount. (Another standard scripted email template)
- On this final date, the owner makes a phone call and a last email is sent (more scripts), warning that the debt is about to be passed to the collections agent. Email and phone call will remind the client that collection costs will be added to the debt.
- The next day, the debt is forwarded to the collections agent. The client is advised that this has happened and that any collection costs will now be added to the debt. The business owner ceases to let it bother him or her, because it’s now dealt with by someone else.
This sounds like a harsh and inflexible system.
And it is, or rather it’s professional and clear.
Those people are liars
It needs to be. When people don’t pay, and they are given significant extra time to pay and they make promises to pay, but they don’t, they are liars and they have your money in their pocket.
My friend doesn’t like to implement a simple system such as this, because he thinks the artists won’t respect him in the morning and he (like all of us) really wants to be respected in the morning.
I told my friend three things:
- If you implement a system such as this and you run it religiously, without fear or favour, you will be seen as a professional. In fact this is the most effective way to gain respect.
- Who wants to be respected by people who are liars, who can’t organise their lives like adults and who think it’s ok to treat a person like you as a doormat?
- Payment terms and collections systems, run consistently, work. They generally, at least, halve the number of issues businesses have with slow paying clients.
Implementing a payment and collection system and running it, religiously, means you’ll be treated as a respected business owner, not a doormat… I promise you.
Cashflow, Profit and the 7 Big Questions of Small Business
Business owners frequently ask 7 Big Questions about how to Build a Beautiful Business and Life.
The second of the 7 Big Questions is: How do I make more money in my business?
To answer the second question, I have identified the “7 Rules for making more Profit in business.”
The fourth Rule is the old maxim: Cashflow is King. This is one of many more articles on this site that explain how Cash and Profit hang together, in some depth.
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