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Staying Cash Flow Positive

14 March 2011

This is a good time for a few reminder tips to help you keep cash flow positive during these interesting times.

SMART INVOICING:

1. NO unpleasant surprises on the invoice. Always talk to your client as soon as you know they have made a request that should incur extra costs, then confirm it in writing. You are using Change Request Forms aren’t you?

If you are using a collaborative tool such as Basecamp, all the better. It is helpful if your client can easily access the flow of proofs and requested changes/corrections. If they know you have it very well organized they are less likely to argue with you.

2. Always ask for a payment schedule and no matter how tempting, do NOT start work before the deposit is received. Remember, the more business like you are from day one with your client, the more respect you will receive. Asking for a significant deposit is industry standard so don’t be shy in asking for it – especially now.

For example, your payment schedule could be 30 or 50% payment due upfront, with an additional 30% when final creative is signed off and before production work starts, with the balance invoiced on delivery.

Or, if it is a large, long term project, you could make monthly progress billings, based on milestones achieved, with the deposit equal to the cost of the first milestone.

3. If you are dealing with a larger corporation make sure you understand what they need on an invoice. That probably includes a purchase order (PO) or requisition number and details as to the department name or number the charges should be applied against.

If there have been increased costs since the PO was issued make sure you contact the purchasing department before invoicing to find out how they want it handled. Adding on a few extra unapproved expenses could delay a large payment and you can’t always count on your contact knowing the ins and outs of their own purchasing process.

4. Consider dating and sending your invoices on the 15th of the month and you may be included in the end of the month bill payment cycle. Receiving payment a couple of weeks early with no extra effort on your part can do wonders for your creative business cash flow.

5. Clearly state your interest policy on all invoices. In addition, always make sure your invoices and statements include a line item with the actual interest accrued since the last invoice was sent.

6. If your client is managing a small business consider sending self-addressed, stamped envelopes (“SASE”) to speed up the collection process. Many a check has been delayed a week due to the lack of a stamp.

7. Photocopy the first check you receive from a new client and keep it in their file. Knowing their bank branch and account number may prove very useful should you have a collection problem later.

FOLLOW UP:

This is the biggest challenge for many creative business owners. It takes discipline, time and commitment to follow-up accounts receivable and many creative firms do not have a spare person to do this work. However, the alternative is cashflow headaches and maybe even closing the doors of your business.

If you are not doing the follow-up consistently consider contracting it out. Your bookkeeper may be able to do this or perhaps there is a virtual assistant (VA) in your future. Using a VA you can hire specialist skills, such as making “iron fist in a velvet glove” collection and service calls, and only pay for what you use each month. Here at Design Coach on Call we are developing a pool of VA’s to help you out. Contact us to learn more.

1. The day after an invoice is due call your client and ask if there is a problem. Of course I’m assuming you have already made your post-delivery call to the client, however something related to the invoice may have arisen since then.

The invoice could have been lost or perhaps there is a question about it and your client has just not taken the time to call. If there is no problem, then ask where the “past due” payment is. Do not accept generalities. You want to know when you will see the check. Remember, you can be polite and business like at the same time and the more ways you show your professionalism the more respect you will receive.

2. This is the perfect time to remind your client you have fulfilled your commitments and you expect the same from them. It is fair game to ask if they usually keep their commitments. The answer will be “yes” at which point you should reply “And why haven’t you done so in this case?”

3. Consistent, early, personal contact works wonders. If there was a problem you can resolve it quickly and if your client knows you will ALWAYS call they may pay your bill first, simply to avoid the embarrassment of explaining late payment to you each month.

4. Keep a file for each client and record all contact including: date, time, who initiated the call, who was on the call and what was said.

5. Be pleasant, but firm when making collection calls, never threaten and never, ever pretend you are a collection service.

6. Stop giving credit to overdue clients. If an account is clearly slipping, don’t dig the hole deeper by extending more credit. Don’t put your design company at risk just to ‘be nice’ or simply because you weren’t paying attention.

Thanks to Eliot Wagonheim at Wagonheim Law for several of the above suggestions. Eliot is a very down to earth lawyer who understands the creative industry and the principle that contracts must serve both parties well.

Biz Mgmt, Blog, Client Relations, Time & Money

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