Need Help From Other Small Business Owners...

Tell them to pay or you'll send Sal and his boys over for a visit.

You have to be firm about money. We work on a parking meter type system. You feed the meter and we work until time expires. Pay us for a month and then we work for a month. At the end of that month you either plug the meter again or we move on to something else until you do. We are literally never doing work that we haven't been paid for already.

Sometimes clients don't really believe that the work will stop when the money stops, but they get the message pretty quickly once it happens.

You make total sense and I want to be that way, but I also don't want to be too hard for fear that I will drive them away.

I guess I need to take that risk and be confident about it.

I sell for a Fortune 100 company - I'm also responsible for having my clients pay on time. The two roles are contradictory, but you can make them work.

Since you are working with their VP of marketing, simply explain that your prices are based on net 15 days payment, and that consistent disruption by any or all clients will force you to raise your prices - don't threaten inability to pay your workers, or he'll worry he's dealing with an insolvent company. Explain the cost of money to him, maybe he was a marketing major and didn't pay attention in finance class.

I've worked with some very large and "rich" companies - believe me, they will float a penny for as long as possible if nobody calls them on it.

I'm a Credit Manager - if you don't call they don't pay. Others will call and they get on the list 1ast

You are taking it too personally. Just call up with a friendly reminder (don't waste time on emails or letter) and then a follow up call a few days later

Make sure you always do it - be polite but be a pest

It's good to see someone struggle with an issue similar to mine. I'm also a small business owner too.

In my situation, I have about 10 clients that pay my yearly salary. They often cancel their appointments for stupid reasons but they feel justified. I can't replace that lost revenue, so it is frustrating. I've thought about having them sign contracts, but I don't want to scare them off. This past month, I have a lot of new clients, and they have been the worst, but I can't even get to that first or second appointment to collect the money, so I can only be polite when they cancel.

I'm definitely going to start introducing contracts with them, because as my business grows, these cancellations will lose business I would have otherwise had. However, again there is a certain delicate balance, because I'm still at the point where the customer is in control.

It sounds like the $150k customer is in control, since they're such a huge chunk of business. And it is understandable you CAN'T lose that business. I think your only solution is to change your books. Basically invest some of your earnings over the next few months, so that you keep 3-6 months extra liquid ($30k-$75k). Thus, when the company pays you late, you won't feel the sting. It may suck, but as you've stated it's a better solution than pressuring this company until you lose them. Also, they won't know about your accounting trick, so still invoice them net 15, which should guarantee they pay within 90.

And ignore any response that might result in losing this company's business. It is easy to make empty threats on a message board, but when it is your livelihood, you have to be smart.

In The Bell Jar wrote:

You make total sense and I want to be that way, but I also don't want to be too hard for fear that I will drive them away.

I guess I need to take that risk and be confident about it.

Yeah. I think in part it depends on industry norms. Our model is fairly common within our specific field, so it's not like we're drawing a harder line than others.

I guess I'd make the decision based on the amount of other work that is available. If this firm goes elsewhere, will you have some work to replace the lost business, or will you be sitting in the office with your hands folded waiting for work? If the former, you're probably better off being firm. If the latter, you might decide that working for lat pay is better than not working for no pay.

How long have you been working with this company? The MM obviously knows you are a small business, right? Explain to him that you also have a payroll and expenses. Ask him outright if his company can pay within the 15 days. He knows you don't have the capital structure his company does.

I can tell you from experience that many CFO's tell their AP people to string it out as long as possible. It's called "float" and some companies can make big $$$ doing it.

Be nice but firm. What % is he of your business? You may not want to have all your eggs in one basket and spread your revenue base if you can.

Good luck!

A different perspective: 15 days is a pretty short turnaround, regardless of their company size. I would make it 30 or 45 days, notify the client of the change and that it will be enforced, and then the very first invoice that isn't paid on time, that first late day, you resend the bill with an added 5% late fee added. Not enough money to drive them away, but enough for it to sting and remind them you are a real business with employees and worthwhile services. The key is to enforce what you write down.

I too own a small business, and I know what you're talking about. I agree with the suggestion to gently and politely nag. Or, raise the rate, and offer them a "discount" for timely payment.

I want to make a bigger point: going forward, you need to diversify. You do not want this much of your business to depend on a single client, especially one who has repeatedly shown the willingness to take advantage of you. (Your client is well aware of the cost of money, and probably tracks his Accounts Payable Turnover Ratio.)

What you don't want to do is to give up all your negotiating and psychological "power" to this client, as seems to be in danger of happening. They need you too.

Good luck. It's tough being the small guy, but ultimately so much more interesting and rewarding.

A reasonable suggestion but this needs to be discussed upfront not just send another invoice and add x%. There is some history of late paying already.

This is what business people do, discuss and reach an agreement...or not and maybe come up with something else. It's call the art of negotiation.

I appreciate all of the advice.

This client is about 30% of our revenue right now, our biggest client. We don't want to lose them.

Sure, I would love to say that if they left we'd just replace them but times are tough and the economy is not great. We do good work; they know that we do good work.

Marketing in general is weird though. Expenses in the marketing world are not as tangible and there are ALWAYS going to be competitors telling the CMO that they can do a better job (even if they don't even do the work).

I have had the conversation with him and he knows the situation (to an extent). In all other areas, they are a great client, so I guess this is a minor problem. Still, it is one that seems SO EASY to fix if they would just pay us on time. I attribute it to him being somewhat lazy (or busy, more likely). I would bet all of my money that since he has to approve the expense, he just throws the invoice in a pile with the others and does all of them once a month or once every two months or something.

Even though he knows we are small, I don't think he gets that we don't have millions of liquid sitting in the bank. We actually have a good chunk in the bank, I am pretty conservative and owe myself about 5 dividend payments at this point that I have decided to forgo in favor of having a large pad. Still, it is the principle.

Thanks for hearing me out, I enjoy reading your posts.

Nj possible wrote:

A different perspective: 15 days is a pretty short turnaround, regardless of their company size. I would make it 30 or 45 days, notify the client of the change and that it will be enforced, and then the very first invoice that isn't paid on time, that first late day, you resend the bill with an added 5% late fee added. Not enough money to drive them away, but enough for it to sting and remind them you are a real business with employees and worthwhile services. The key is to enforce what you write down.

Good advice, thank you.

Sounds like you have thought it thru and know how to handle it. Still, I would seek some other clients to spread out your revenue base. Do you have a contingency plan in place if you were to lose this client of 30%? Food for thought.

One other thought: how far away geographically is this client?

If close by, after you have the conversation, you can always hand carry a follow-up invoice after x? # of days late and discuss again.

thepinkmonkey wrote:

Sounds like you have thought it thru and know how to handle it. Still, I would seek some other clients to spread out your revenue base. Do you have a contingency plan in place if you were to lose this client of 30%? Food for thought.

One other thought: how far away geographically is this client?

If close by, after you have the conversation, you can always hand carry a follow-up invoice after x? # of days late and discuss again.

I am always trying to bring in new business, so your point is well taken and I agree. Not too far away,an hour. I try to meet with them at least once a quarter if not more.

15 day turnaround is too short for a big company. Try doing this:

Send a letter to them saying that your business is now changing its payment policy. 30 days net is the new policy. Clients who substantailly adhere to this policy will be considered preferred customers and will not be charged any interest or late fees for an occasional untimely payment. Clients who fail to adhere to the payment policy will be charged _% per month for late payments.

Be sure to review your state's usury laws. Every state is different. There are usually prohibitions or limits on charging late fees or interest without an agreement.

But, don't feel like you have to be this company's short term lender. You don't. This company may actually have more respect for you if you stand up for yourself. And if they really are not able to pay 30 days out, you might need to start wondering what is going on. They may not be on very good financial footing.

Not sure how you market yourself but think about a local referral group. They usually meet once a week in the am before work. Cost is minimal. Might be tough to get into because it seemed like every local web design firm wanted to get into our groups but only 1 could be in each category.

My payment to invoice date period is averaging 45 days. My terms are 30 days. Your payment terms are 15 days. Your terms are too tight, in my opinion.

I've been consulting for more than 10 years. Some of my clients get behind. A few have not ever paid me.

As the business owner you are the one who has the most to gain, and also too lose. I don't have any employees, but I do have other consultants I hire and pay.

You have to save for a rainy day. It's taken me a long time, but I can now absorb a six month gap between invoices and payments. I have a lot less stress worrying about being paid than I did my first years as a consultant.

My slowest paying client was the City of Los Angeles. Nine months, and two claims that the invoices were lost and the process had to start all over.

If a client pays me regularly I don't get too concerned, even if the payment gap between the invoice due date and actual payment increases; going from my standard 30 days net to 60 or more days. As long as the increase is steady, not sudden, I don't get worried. An example of a sudden payment time increase is skipping a month, and then not getting paid the next month. Then it's time for a friendly reminder. If they still don't pay then you have it's time to get tough.

In The Bell Jar wrote:

(1) Expenses in the marketing world are not as tangible and there are ALWAYS going to be competitors telling the CMO that they can do a better job (even if they don't even do the work).

(2) I have had the conversation with him and he knows the situation (to an extent). In all other areas, they are a great client, so I guess this is a minor problem. Still, it is one that seems SO EASY to fix if they would just pay us on time. I attribute it to him being somewhat lazy (or busy, more likely). I would bet all of my money that since he has to approve the expense, he just throws the invoice in a pile with the others and does all of them once a month or once every two months or something.

(1) I worked in marketing, and as a small business, I also employ freelancers. I know, and this guy MUST know, that it is very difficult to find a good contractor/employee, even in this environment. Most people don't work out. If you do good work for these guys, replacing you will be a big headache for them. Not as big as for you, but still one they want to avoid.

(2) I have to disagree with you on this one. Business is ultimately about money, and the client-vendor relationship is ultimately about getting paid. If he is not paying you (on time), he is not a good customer. And I'm afraid you are being a little naive or in denial by attributing his tardiness to being "busy." You may want to believe that, but when the error is always in his favor and against you, something else is going on.