Entrepid

If you’re jumping in mid-stream, Part 1 (with the complete list) can be found here.

15) Make Collection Calls as Soon as Accounts Are Late

If you’ve done all the other things to insure prompt payment this shouldn’t happen very often.  But, in spite of your best efforts there will be times when a customer is late with a payment.  Call (don’t email) right away.

Sometimes things slip through the cracks and being pro-active will get them back on track.

Sometimes you’ll have a client experiencing temporary cash flow difficulties.  You WILL want to know this immediately so that you can take appropriate action.  This may be the time to put them on COD for the future if it looks like the difficulties will not be so temporary.

You would rather find out now instead of when you have an invoice that’s 60 days late, another that’s 30 days late, one that’s coming due in a couple of days and an order that just left your warehouse yesterday.

Bonus Item

16) Cut Off Chronic Late Payers

This one won’t necessarily get you paid faster, but it will protect your cash flow.  Chronic late payment, even after all your best efforts to establish on-time payment, can be a signal that the client is experiencing financial trouble.  You don’t want to be left holding the bag on large A/R balances if they go into bankruptcy.

Cutting off a chronic late payer usually means putting them on COD status.  However, if they can’t, or won’t, pay COD, you need to willing to walk away from the relationship.

If you’re jumping in mid-stream, Part 1 (with the complete list) can be found here.

12) Accept Payments Electronically

The most common methods of electronic payment available to small businesses will be credit cards, PayPal and check-by-phone/check-on-line.  All of these methods have costs involved, but having the cash in your checking account sooner can make it worthwhile.

For larger payments wire transfers can make sense.  Again, there are costs, but for larger payments - several thousand dollars and higher - the costs are generally lower than credit cards, PayPal and check-by-phone.

13) Send Thank-you’s

A quick email to your client’s A/P person thanking them for timely payment goes a long way toward developing a friendly business relationship.  Remember, people like doing business with people they like.  Be likable.

And, for going above and beyond the call of duty, send a hand written note.  You will be remembered favorably.

14) Deposit Checks Right Away

It makes no sense to go through all the effort to get paid promptly and then sit on the check for several days before depositing it into your checking account.  A check is just a piece of paper until your bank makes the funds available to you.

Something else to keep in mind.  Except for the largest companies, the person who pays invoices and the person who reconciles  the checking account are in physical proximity and talk to each other.  If you develop a reputation as someone who holds checks for deposit, they’ll be less likely to pay you quickly.  After all, you must not need the money that badly if you can afford to hold checks.

If you’re jumping in mid-stream, Part 1 (with the complete list) can be found here.

Get Up-front Deposits

This is the ultimate in getting paid faster.  Attorneys have been doing it for years with retainers.  Custom manufacturers that have to buy raw materials for their customers’ jobs also do it.  So can you.

The key to getting clients and customers to pay in advance is having a good story.  By “story” I don’t mean something made-up, but a convincing reason why you need to by paid in advance - one that the customer can easily understand and agree with.

“We have to buy a large amount of raw material for your order and we aren’t able to float that for you.”

“Our schedule is tight and we’re scheduling out weeks in advance.  We can only afford to put customers into the schedule who are serious about paying their bills.”

“Our CFO says that new customers have to put down a deposit in advance.  After we develop a relationship we can discuss terms with you.”

There are many more you can think up. 

9) Develop a Relationship With Your Client’s A/P Person

In spite of all our technological tools and innovations, business is still about people relating to other people. 

And, in spite of any rules and procedures in place, employees use a lot of discretion in how they go about doing their jobs.  Antagonize your client’s A/P person and you can find yourself with “lost” invoices, incorrect payments due to “typos” and checks that get “lost in the mail.”

Conversely, become friendly with the A/P person and you can jump to the front of the line. 

This doesn’t have to mean holiday cards and tins of popcorn.  Learning their name, being pleasant on the phone, and not being a pain in the neck will go a long way.

10) Call In a Couple of Days To See That They Got Your Invoice

Or, alternatively, if you’re sending invoices by email, ask for a delivery confirmation.

There aren’t many things more disheartening than expecting to be paid on a big invoice, waiting until 30 days are up before calling, then finding out your invoice never made it into the system.  A five minute phone call can head off problems before they become serious.

11) Call In Advance of the Due Date

This goes hand-in-hand with #10.  A few days before your scheduled payment date, give the A/P person a call just to make sure your payment is going to be on time.

A lot of companies will delay payments to vendors just to test out how far they can push things.  By calling in advance, you send the message that you expect to be paid on time.

If you’re jumping in mid-stream, Part 1 (with the complete list) can be found here.

5) Invoice Quicker

The lag time between when a service is performed, or a product is delivered, and when the invoice is sent out is the hidden Days-in-A/R.  Your customers don’t begin the payment countdown clock until they get your invoice.

If you deliver a product or perform a one-time service, invoice the same day.

If you perform a series of services that are billed separately, invoice at least weekly.

If you perform services on a monthly basis, arrange with the client to bill on the 15th and the last day of the month.  Or even better, negotiate to bill on the 15th of the month for that whole month.

The sooner you invoice, the sooner you get paid.  It’s that simple.

6) Send Invoices Electronically

Sending invoices electronically solves several issues related to delayed payments.

• It saves a couple of days in transit.
• The invoice goes directly to the appropriate person at you client’s office - the paper invoice doesn’t have through your client’s internal mail delivery process.
• It won’t get "lost" on the way.  It’s amazing how many invoices get lost in the mail.
• It sends the message that you’re serious about being paid on time.

Sending invoices electronically isn’t difficult.  Rather than printing out a paper invoice, print to a PDF document and attach to an email.  If you’re a Quick Books user, it will do this for you.

7) Invoice More Often

This is especially targeted to service businesses, including those who do Time and Materials billing.

There’s no law that says you have to invoice monthly, but that seems to be the standard operating procedure for just about every service business performing on-going services for clients.  You don’t have to keep doing it that way.  You can invoice weekly or semi-monthly and most of your clients will go along.

With current clients, politely inform them you’re changing how you invoice.  You might get a few grumbles, but little outright hostility.  If a client says they’ll stop working with you if they receive invoices more often than monthly, keep them on a monthly cycle.  For the rest, invoice more often.

It’s easier to handle this with new clients.  Just inform them of your invoicing policy and make sure YOU comply.

Sometimes in the hurly–burly of running a business every day we lose sight of why we do This Thing of Ours. Here’s a three-step process for eliminating the things that get in the way and focusing on what’s valuable.

What Do I Know How to Do?

All too often the entrepreneur has a hundred ideas for making money, but no clear idea of how to actually make it happen. A good starting point is figuring out what abilities you, or your organization, have. If you attempt to develop a new product or service – or even a whole new business – and don’t have the necessary skills, you’ll put undue stress on yourself and your people. There really are a million ways to make a buck and you’ll be more successful if you stick with what you know.

This doesn’t mean you can’t do new things. Just don’t overdo it. Make sure your current business is on solid footing before going off in new directions. And, don’t try too many at one time. Focus!

Can I Make Money Doing It?

Just because you can do something doesn’t mean you necessarily should. You might be a highly skilled buggy whip maker, but I doubt you’ll build a successful business in buggy whips.

Ask yourself a few questions:

• Are there enough people willing to pay me enough to make a profit?
• Is the competition sparse enough for me to carve out a place?
• Does my intended market have legs? Or is it a fad?

After figuring out what you can do and what you can make money doing, you have one more question to answer:

Is it Fun?

Fun can mean different things to different people. Fun can be enjoyable or socially worthwhile or challenging. How you define it isn’t important. The fact that you are having fun, as you define it, is.

Fun is what will get you through the hard times – and every entrepreneurial endeavor will have hard times. If you get up in the morning dreading going into the office or the shop, you need to re-evaluate just what it is that you’re doing with your business.

Earlier this week I was in the market for a trailer hitch. The automobile dealer wanted about 3 times what I thought was a fair price (Hello, Volvo?) and I heard from a couple of people that U-Haul did a good job at a reasonable price.

U-Haul can tell you on their website which locations are nearby and what services they offer. Some only rent trucks, so I could bypass them. With a list of phone numbers I proceeded to call the locations that offered trailers and trailer hitches.

Unfortunately, not all locations offering trailer hitches had “trailer hitch mechanics” on site to install them. And the ones with mechanics couldn’t get to me for at least three weeks.

After an hour’s worth of research online and another hour of unsuccessful telephone conversations I gave up and decided to take a different direction. I was prepared to spend money with U-Haul, but they made it next to impossible to do so. They could have made it easy.

How difficult would it be to show online which locations actually install trailer hitches. And, how difficult would it be to show available times and allow me to book an appointment online? Making it easy for me would have created a happy customer for U-Haul.

Also, as a highly motivated buyer with a deadline I would have been willing to pay extra for speedy service. Are trailer hitch mechanics so valuable that the company can’t get one to work an hour of overtime for a customer willing to pay an extra $50 or $75?

I’m not singling out U-Haul, we’ve all had experiences with businesses making it difficult to spend money with them. If I had one piece of advice it would be this:

Put yourself in your customer’s shoes. Attempt a buying transaction with your own company and see where the kinks are. You might just be surprised.

Mark at Productivity501 uses an example of a client’s accounting system to illustrate the importance of integrating processes over having “best of breed” software.

“If you choose your solutions based on integration instead of features, you’ll increase your productivity–even if you have to sacrifice some features. If you choose your solutions based on features and ignore the integration aspect, the time savings benefits will be greatly reduced.”

My response is a hearty “Amen!” If I had a nickel for every dysfunctional work process I’ve seen I could stop working for a living and blog full time. I’ll go a bit further than Mark, though, and say that lack of integration isn’t just limited to software. Processes can break down for a whole host of reasons:

People – if you have employees who just cannot work as part of a team, the best designed work process will not function to its potential.

Physical Space – if people, or departments, who should be working together are too separated physically, communication is thwarted. While modern communication tools are great, and have done wonders for keeping people connected, there is no substitute for the regular, spur-of-the-moment face-to-face contact.

Strategy – by this I mean the lack of communicating the strategy to your people. It doesn’t matter if it’s because a strategy doesn’t exist or because you don’t communicate that strategy to the rest of the organization – if your people are making decisions in a vacuum they won’t all be on the same page.

These are just off the top of my head. I’m sure there are plenty of others. Care to add your two cents?

One last bit of wisdom from Mark:

“A well designed integrated process with average tools is much more productive than the best tools, but no integrated process.”

John Jantsch at Duct Tape Marketing says that marketers of services can learn a thing or two from retailers.

“All it takes is looking at your marketing from some new perspectives.

· What if you offered gift certificates for your services?

· What if you mailed those gift certificates to your loyal clients and encouraged them hand them out?

· What if you offered bridal or baby registry? (C’mon, get your neighbor’s kid a tax return for their wedding - way better than a toaster)

· What if you held over the top events for your clients? (I know a remodeling firm that buys out a Christmas tree farm for that year’s clients)

· What if you had a holiday, client only, sale or new service introduction?

· What if you held education forums aimed at very specific niches of your clientele? (single women, parents with kids going to college, sports minded families, people learning to be more green.)”

I think those of us in service businesses somehow think we are (or should be) above the kinds of things that those less-than-dignified product marketers do to move merchandise. And, while I wouldn’t want to copy some of the more outlandish ones, we can certainly borrow the tried and true and modify them for our service businesses.

What do you think? Do you have any additions to John’s suggestions?

If you’re jumping in midstream, the series begins in Part 1 with the complete list. Part 2 can be found here.

3) Set the standard up front and be firm

It’s human nature to try to get away with whatever we can. Those of you who are raising, or have raised, young children know this from experience. You’re being naïve if you think everyone leaves the child behind when they get older.

If you want your customers to pay you on-time, every time, you have to deliver a consistent message: “We’ve kept up our end of the bargain and so should you.”

And when I say consistent, I mean 100%. Like the child attempting to wear down the parent with a never-ending series of Can I’s, your customers will constantly test you to see if you’re serious. Let them slide 5 or 10 days this time and next time it will be 10 or 15 days. Before you know it, the customer with 30-day terms is paying you in 60 days. Do this with enough customers and your Accounts Receivable get out of hand.

I’m convinced that lack of firmness on A/R terms comes from a place of weakness. We’re afraid that somehow what we provide to our customers isn’t quite good enough. And if we push them on payment, they’ll go somewhere else. While this may be the case in a small minority of situations, I doubt that your customers decided to do business with you because they thought they wouldn’t have to pay you on time. Operate under the assumption that they buy from you because of price, or customer service, or quality, or anything other than you’re an easy mark. Your wallet, and your blood pressure, will thank you.

4) Use late charges and enforce them

Remember that I said in Item #1 that Accounts Receivable is your money. You’re just letting the customer hold it for awhile. If they hold it for longer than you’ve agreed to, it’s only appropriate that they pay you for the privilege.

Assessing late charges accomplishes two goals. It not only incentivizes your customers to pay you on time, but it also compensates you in case they don’t. You should make sure of the legalities in your jurisdiction, but I recommend at least 1.5% per month, or part of a month, that payments are late.

This is another case where sticking to your guns is important. Make your policy that a payment has to be received, not mailed, by the due date. And, in case a check doesn’t clear act as if you never received it in the first place.

I had a chat with a client the other day and he laid out his thoughts concerning the levels of employees in an organization. He was attempting to evaluate the value of continuing the relationship with his business partner.

I thought his observations were very insightful and my readers might learn something from him. Thanks, BC!

You show up on time and do what you’re told

It may sound harsh, but not necessarily inaccurate to say Level 1 employees are those people without skills, but fill a need anyway. They may have a future after learning the skills necessary for the job, or maybe the job doesn’t require skills.

The minimum performance measure is to show up on time, every time, and do what the supervisor says to do.

These people don’t have a lot of long-term value unless they climb up to the next level. If your work requires only Level 1 employees, be prepared for lots of turnover.

You can do your “craft”

Level 2 employees are sufficiently skilled in their craft to be able to work with minimal close supervision. You should be able to give a Level 2 employee a simple goal and expect them to complete the task, or series of tasks, without having to direct each step in the process.

You can supervise Level 1’s and Level 2’s

Level 3 employees have enough knowledge of the tasks that 1’s and 2’s are responsible for to direct and supervise their activities. Level 3’s don’t need to be as skilled in the actual performance of the tasks, but they need to know enough not to be fooled when an employee says “that can’t be done” or “there’s not enough time.”

You can manage a project

Level 4 employees can see the big picture enough to be able to manage resources (people, material, time, money, etc.) toward the completion of a project with minimal assistance from higher-ups.

These employees are experienced in their occupations, have a measure of business savvy and are capable of managing and motivating employees. They are also extremely valuable to your organization.

You can manage an enterprise

A Level 5 is generally the owner (although not all owners reach this level) or a trusted senior leader in the business. They can see the whole picture and are capable of developing and implementing strategy, deploying capital, recruiting and managing Level 4’s and creating the culture of the organization.

Ideally, if you’re going to pick a business partner it should be a Level 5 person. However, they are few and far between and may not be available to a small business or startup company. Level 4, project manager, is the lowest level I’d recommend for a business partner. The difficulty arises when neither/none of the business owners are Level 5’s. In that case it’s vitally important that the business owners engage with outside advisors or mentors who can help them with managing the enterprise.

After some serious thinking, my client arrived at the conclusion that his partner was no higher than a Level 2. A very skilled Level 2, but not valuable as a partner and leader of the organization. He decided to end the partnership.