I want to talk about what happens after you get over the excitement of getting that first order. Yes you knocked it out of the park and you have a new customer, a large one and it feels great, but what happens next? You supply your goods or service and your contact asks you to send them the invoice and they will get it paid. Sometimes that works out but there is a better way plus there are some questions you should ask yourself.
Should you be offering credit - in my business I look for payment up front because I cannot take back the knowledge that I am imparting so if they decide not to pay me I have a problem.
In terms of credit is your customer the end user and if not why would they need credit. The idea of credit is based on the notion that you sell a product to someone who sells it on and you allow them sufficient time to get the money in to pay you. But if they are the end user then in theory they should be paying you COD. You may allow a 5-7 day latitude for accounts of larger organisations to process the paperwork but that should be it.
Let's say you have decided to give them credit, what checks are you going to make and what limit will you impose? You should consider this because you may be putting your entire business on the line.
Many companies insist on getting payment in advance for the first couple of orders while they check out the credit rating of the new customer and there are credit bureaus that you can use to do that.
Have a policy that minimises your risk.
You are dealing with a large corporate and they say ‘our terms and conditions are’. In reality it should be you issuing the Terms and Conditions as you are the supplier but large organisations have a habit of trying to control the transaction. For example we pay in 60 days. This is where you need to be brave and stand your ground. Contact the Accounts Payable Department and ask to speak with someone senior. Explain that you are a new supplier to the company and that you want to make sure you give them the right paperwork so that their job is easier. Ask them to explain their system, for example, we must have a month end statement, invoices must be received by x date to be included in month end payment etc. Above all get a name and get a second name of the person you might actually be dealing with. Build a relationship with these people because they can make your life so much easier when they are on your side.
The conversation around credit may come up where they say we take 60 days to pay invoices. How do you respond?
'I did not realise that when the order was placed but that is fine as I have a two tier pricing system. The cheaper one is where I am paid in 15 days and the second one is for those who want credit'. Now most large companies will jump at any discount offered so when you say the difference is 5% they have a choice and probably will take it.
Paperwork is the main reason invoices get held up so you can see the reason for building that relationship with the Accounts Department. In fact they are often so overlooked they jump at the chance of having a conversation with someone outside of the organisation just for some social interaction. I have found in the past they will notify you if there is an issue with your paperwork instead of letting you discover that at the end of the month when you don’t get paid.
Be careful of your contact who is making the purchase. It is quite common for people to order without a PO where a PO should be issued. Your new friend in accounts will help you here. If the person making the purchase asks for the invoice to be sent to them directly do so but send a copy to the Accounts Department. It could sit on his/her desk forever but accounts do not like odd bits of paper hanging around and they will do the chasing for you.
I was asked by the CEO to do a small bit of consultancy work. I submitted my invoice to his Accounts Department and got a call from a rather snotty woman saying that I needed a Purchase Order. I said I was working for the CEO and she replied that she did not care it was a rule of the organisation but she would make an exception this one time only. A month later the CEO contacted me asking for me to do another piece of work. I said that I needed a PO number and he said nonsense. I related what had happened the previous time and he was not pleased. He hung up and I got a call later in the day from his accounts people with a PO number for the new piece of work.
Continuing on the paperwork theme when do you send out your invoices? I often hear the end of the month. This has two issues. One it gives you more work to do at the end of each month but more importantly it creates a cash flow issue as you could be waiting over 60 days on the projects completed earlier in the month. End of month is old school so get into the habit of issuing invoices as the work is completed. If you are working on a large project it is important that you break it into phases in your initial proposal. This allows you to bill in stages and the phases will match the PO created by your customer. You do not want to be waiting for the last phase of a project valued at €2k to complete to get paid the other €20k in fees accumulated.
Do you send out statements every month at the month end? It is a good habit and it lets your customers know that you have a good system in place.
I talked about building rapport with the people in accounts and that may be the partner of the business owner in a small company or someone who has multiple roles. You may be trying to get an invoice paid and it is clear that they do not have the money. Avoid being aggressive as they may stop taking the calls. Try and help them, we can take payment by credit card, can you pay me 500 this week and 500 next week. This approach I have found gets better results. Another issue with being aggressive is that they end up giving the cash that they have available to a rival company because they have no account which means that you lose the money and the extra business.
Finally, on this theme if possible split the sales and accounts function. In a business I ran my partner got the new business and I was the devil collecting the money. Many clients have more business but are short of money now. They are good for it in the long term so make it easy for them to meet one side of the business to talk about new work.
Make sure you have an up to date debtors ledger at all times because time moves quickly. Accounts moving outside of 90 days have the hallmarks of a bad debt. If necessary engage a professional debt collection agency. Avoid solicitors where possible as once people get a solicitors letter they respond in two ways, ignore it which means sending another one or get their solicitor to respond because they feel threatened, either way the costs escalate.
Suppliers - this is more simple and in terms of doing business you need to understand the relationship. If they are particularly large they dictate the transaction however they maybe a small company like yourself. Talk with them and explain clearly what you need. Be honest and be realistic in being able to deliver what you said. Build a relationship with the person in accounts similar to what I talked about in the reverse transaction. The value of this is that you may be short of money to pay a bill and failing to respond correctly may mean your line of credit being cut off.
Always take the call from the Accounts Department and explain what is happening. Offer to pay what you can and give them a realistic date for receiving the balance. If you don’t know tell them that you are not sure but will ring them on a specified date to update them on the situation. By taking the calls you will greatly reduce their frustration and they will thank you for it because they are so use to having their calls ignored. Finally, call them on the day you said you would and keep working with them. It is often a case that they have to report to a Financial Controller and once they have an update it will buy you time.
As a last thought don't forget the importance of PO’s - small companies seldom use them but they are a great discipline in managing costs, stock and deliveries. Modern systems can match them to invoices and credit notes and when integrated into your system give you huge value in terms of products you are using, margins, frequency etc.