Cash flow template

Speed up payments, increase your cash flow - getting clients to pay invoices

Clients seem to be paying more slowly these days. Those of us who work hard and depend on a steady cash flow for steady meals can find this foot-dragging a real problem.

However, there are some cash-generating, frustration-reducing techniques that old-timers have learned really work. Here is some of their best advice for getting paid faster--even in worst-case scenarios. But, as you consider these methods to speed up your own cash flow, remember that you catch more flies with honey than vinegar. So, at first, it's generally a wise idea not to come down too heavy on clients in order to get paid.

TIPS FOR TIMELY PAYMENTS

Prequalify. "Hunger for an account, especially when business is slow, can get you into a lot of trouble," says Bob Bosche El Toro, California, management consultant. "It can make you take on business you shouldn't."

He suggest, "Look around their offices and see who supplies them. Also, try to find out who their other vendors are and give them a call." Don't overlook warning signs about a potential client, or you may end up with a deadbeat and only yourself to blame, he says. If Bosche suspects that a client will be a problem, he buys a printout on the client from a credit-reporting service.

If you're still uncertain, you can obtain a credit report on any business or individual for about $15 to $20, says the Associated Credit Bureaus, a Washington, D.C., trade group. TRW is probably the best-known credit bureau, and there are others. For example, before laying out money for materials or performing any services, a painter might want to get a credit report on a homeowner who hires him or her to do $2,000 worth of work.

Protect yourself up front with a complete explanation of your billing policy and a strong contract. Marjorie and Raymond Jassin, whose firm Law Library Management manages libraries for legal-firm and corporate law clients, say they avoid a lot of problems that way. "Before we take on a new client, Raymond will spell out our terms," says Marjorie. "He will explain that we are a small company, that our cash flow is very important, and that we need people to pay within our 30-day terms. That sets the tone for the relationship right there."

Unfortunately, you often have to protect yourself even with favored clients. For example, new start-ups we hold near and dear to our hearts occasionally wind up on a list of our worst-paying clients. A new company can use your services and disappear before you've mailed your second notice. John Baker, a Reno public-relations consultant, asks his start-up clients to write personal liability into their contracts. "Consult your attorney and find the words in your state that get the person on the hook personally," he suggests. Baker's contracts, for instance, say something to the effect that "both parties agree there is a specific personal benefit to John Doe, and therefore he is placing himself at personal liability for these consulting services."

People who run public-relations and advertising businesses can run into trouble because they are expected to front printing and media costs for their clients. While this is just a worst-case scenario, sometimes a bad client walks away and the agency is left holding the bill. Even when clients do eventually pay, most small practitioners don't have the cash flow to cover big printing and space bills. "If worse comes to worst, I can eat my time," says Baker. "But I am not about to reach into my pocket for somebody else's business." This year, many larger agencies are refusing to pay up front for third-party services, and it should be even easier for smaller agencies to negotiate the same type of arrangement.

Invoice today. The sooner you start the ball rolling, the faster you get paid. Even clients that don't require an invoice seem to respond more quickly once they get one. "I invoice almost instantaneously," says Jim Cameron, a media consultant in Darien, Connecticut, who--by prearrangement-- has started billing some of his clients before he does their work. It's a good idea. Many of his clients are themselves advertising or public-relations agencies that pass his bills through to their clients. In January, Cameron arranged to bill his intermediary clients for hourly consultations for their slower-paying clients when the meetings are scheduled.

Cameron uses MyInvoices, a simple program from MySoftware Company, that for only $20 (suggested retail) will help you format a professional invoice quickly and easily (see review on page 49 of the August 1991 issue). Type in the current charges, and MyInvoices will produce a bill that includes an updated statement of accounts. Customers will see their accounts aging at the bottom of every invoice.

At the high end of the invoicing spectrum is Timeslips III, a $300 program that can create any number of specialized invoices as part of its time-management focus. Say, for example, that you have one client that you bil both hourly and by the project against a monthly retainer; and that you bill out to this client at different hourly rates for different services; and that you pass on some expenses with a markup. Set up a template for the client, and Timeslips will automatically generate invoices with all of those variables and add the appropriate taxes as well.

Keep records. Both of these programs can be used to keep careful records of who owes you what, and for how long. (For more on invoicing and keeping financial records, see "Buyer's Guide to Money-Management Software" in the October 1991 issue.) Baker tells of an advertising colleague who analyzes his accounts receivable. "He keeps tabs on the average number of days late and on the dollar value owed by all current clients," says Baker. "If he sees it going up, he starts to pay special attention."

Get on the phone. Marjorie Jassin says the secret of her collections success lies in her telephone tenacity. "I don't allow a lot of time to go by," she says. "I know every day who owes money. In the week after their 30 days are up, I call. I'm pleasant but firm, and I request a specific date when they will be sending a check. If they can't give a date, I will ask to speak to a supervisor."

Offer deals. Different techniques work with different clients, but here are two that Cameron has used with some success. Raise your rates by 10 percent, and then give a 10 percent discount to clients who pay within 10 days of receiving your invoice. Your quick payers will pay a bit less than your original rate, but the 10 percent markup for the slow payers should far exceed the difference. Accounting departments like to show their supervisors they are getting discounts.

The punitive version is to add a late fee to invoices that are more than 30 days old. However, many larger companies simply ignore this tactic. Still, Cameron sends some of his clients a note about a week before the first month is up, remining them that he will be assessing a 5 percent late fee. "What usually happens is the client spits out a check on the 30th day, and then sits on it for a few days, and then sticks it in the mail, where it ages some more."

Become a credit-card merchant. Then, if a client complains of a cash-flow problem, you can just say, "Well, how about if we put it on your Visa or American Express card?" This can solve a lot of problems and help you avoid collection hassles, suggests Baker.

In desperate cases, get help. Baker has an attorney he calls Mr. Scud, who comes in on really problematic (and big-dollar) cases. Otheres recommend collection agencies, which cost you nothing if they fail to collect but keep half the proceeds if they do.

Discontinue service. If someone has never paid you, there's a point at which you just can't do any more work for him. If you have a client who is chronically late, don't be afraid to say, "I'm sorry, Judy, I'd like to do this next proposal for you, but your accounting department is holding me up." That helps Judy save face; she can blame accounting.

PATIENCE CAN BE YOUR BEST TACTIC

Sometimes you have good clients who are having their own cash-flow problems. Instead of hiring lawyers and charging late fees, be understanding. Work out payment schedules that they can meet and you can live with. Someday the recession will be over. And they will remember.

LINDA STERN, a contributing editor for HOMEOFFICE COMPUTING, stays on top of billing her clients.