In a recent discussion with some of our startups at Jaaga a topic that came up was cash flow. Specifically, how to ensure timely payment by clients.
You put time and effort into pricing your services, understanding your expenses, detailing cash flow over the month, quarter, year. But then you find that the inflows (customer payments) are somewhat out of your control.
So you starting following up, but not harassing (client relationships are critical after all) and next thing you know, a member of your small and already strapped team is spending more time emailing, calling, emailing, calling than working on the passionate project that brought you together in the first place. And you’re under utilising one of your major resources – talent. What to do? Some ideas we floated as a group: - Subscription model – The collective experience was that it’s generally easier to enforce timely payment when you are in control of an ongoing service the customer values. For example, if you’re managing the client’s server and they repeatedly fail to pay, you could always deactivate their subscription.
Single upfront payment – This is great when possible, but won’t easily apply to all service models. It may work well for a conference or a workshop for example, because the value of the payment is generally within reach for the participant and there is a general expectation of paying in advance for this type of service.
Multiple installments, milestone based – On the other hand, the expectation in other businesses may be that the client receive the service before paying an invoice. Or it may be that the services are delivered over time, and the total cost is too large for the client to pay at once. Installments may work well for both sides in this case. - For the customer, the incremental payments are smaller and paid only after service is completed.
For you the potential loss is smaller because you can refrain from completing the next piece of work until the original invoice is settled.
There’s no magic bullet, as we expected, but timely invoicing and strong relationships help. You don’t want to harass the client because that may damage the relationship, but if you’re able to put some time into the relationship upfront perhaps your customer will feel more inclined to pay on time (or at least after the first friendly reminder). Talking openly and frequently about payments, including timing, may help as well. If your client understands your time sensitivity, perhaps he can suggest creative solutions for handling his company’s 60 day invoice payment turnaround. It also makes asking for payment less uncomfortable if it’s been a part of every discussion leading up to that point.