Cash is King

I met a friend running a small communications consultancy this week and she was talking about packing it all in. Her business has been very successful and is winning new work. Her problem is with her main client. She has been working for them for ages and has recently been flying around the country doing a project for them. Her invoice therefore, at around £25,000 was larger than normal, but perfectly in order. However, after two months, she hadn’t received a penny. She eventually got hold of the guy who had been avoiding her calls who said he hadn’t signed it as he had lost it on his desk and wasn’t even sure if he had the budget. She is so upset, she is wondering if the hassle of self-employment is worth it after all.

There has been lots of legislation on late payment, but in her case it won’t be much help. She can’t take her largest client to court, and it would take ages. As ever, it is vital for entrepreneurs to take action into their own hands and there are a number of simple steps you can take.

The first is to get it in writing. We have recently taken on an advertising sales team and it is an eye-opener. Whereas I do most of my contracts on a nod and handshake, they won’t consider a deal closed until they have the ink on the paper in front of them including payment terms. It is just good house-keeping really, but saves huge problems later on.

The second is to hire a dragon. OK, so our book-keeper Nan is the loveliest person in the business, but she is ruthless when it comes to chasing money. We have found that the person who complains the loudest gets paid the earliest. I’ve heard a couple of variations on this, with an advertising agency who employ someone very dirty to go and sit in the clients’ smart reception area until they hand him a cheque. The other is a French variation called ‘the payment chicken’ where, unbelievably, someone in a chicken suit will follow the client around until they pay them.

The final one is be careful who you do business with. If you are not sure about a client, then make it a condition of the contract that they pay a deposit, or that the first order is cash on delivery until they build up a credit record. Or ask for trade references. It is entirely reasonable and sends a message to clients that you are very professional about your business. If you give credit, you are effectively lending your client money. I’d have misgivings doing this to most of my friends, let alone my clients.