Small Business 101. In sixteen years running a small business I have picked up some business techniques I sometimes take for granted. This week I am sharing some of my favorite techniques to help you if you are launching or thinking about launching a business.
Nothing will kill a small business faster than being paid in 90 days when you expect to be paid in 30. These are the techniques I use to minimize my time spent chasing the money.
Chasing money takes time. Often people overlook the time wasted chasing money. In one case I ended up logging more hours getting paid than I had actually spent on the project. The objective of this post is to provide you with techniques to ensure you are seldom, if ever are chasing the money. Instead, you can spend the time producing and shipping great art.
1. Request a deposit. Most business you do will be with other small businesses. Asking for a deposit equal to half the project value is a must for two reasons. First, in most cases this will cover your out of pocket costs for travel and any materials you need to purchase for the project. Second, if they can write a check for half now it’s pretty likely you won’t have trouble collecting upon completion and can save the time and expense of running a credit report.
The deposit should be accompanied by a signed copy of your proposal. The proposal in turn should contain language clearly stating when the balance is due. Spend a few bucks with a lawyer to make sure this part is right. I’ve only had to take one client to small claims court but the proper language on that proposal had the case settled before we ever saw a judge.
2. Accept credit cards. This has become so easy, even for a start-up, that there is no reason to not accept credit cards. Paypal, Google Checkout and even QuickBooks (aff link with up to 20% savings and free shipping) have quick and easy set-up procedures so you can be paid right now. You are paid almost instantly and with virtually no paperwork. For small items like an hour of work or a tech support agreement this is perfect. Imagine notification of credit card orders flowing to your inbox 24 hours a day, 7 days a week, 365 days a year. Set-up a business process that makes it easy for this to happen. Pre-payment equals no chasing the money later.
3. Extend terms but only when you must. Yes, I have customers who pay in 60 or 90 days but I knew this before doing business with them. There are many services to perform business credit checks for you and when the project is big enough, it’s well worth the time and money involved in the process. Also, by knowing they pay in 60 days I don’t even start pestering for payment until then. I will send them a statement after 30 days and follow that up with a phone call. The idea here is to confirm they have the invoice and it’s scheduled for payment.
4. Dial for dollars monthly. When you have extended terms set aside one morning a month to follow-up on all the outstanding invoices. Help yourself by requesting accounts payable contact info on the proposal that you got a signed copy of before starting work. Now, when it’s time to contact them, you will have valid email addresses, fax number, phone numbers and most importantly the name of the accounts payable manager. Don’t start work without this information. It’s not really chasing money if you know who to contact and it only takes one call or email a month.
While some of these tips and techniques may seem pretty basic, together they save me hours each month that I can devote to finding new customers and generating new revenue.
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Photo Credit: http://www.flickr.com/photos/adriarichards
Very helpful post, Jim. I've just gone into self-employment myself and will take this advice to heart!
Joe, of all the things I have done in business nothing has reduced my personal stress level more than the advice above.