When you’re a small business you don’t have bank accounts overflowing with cash. Well…I suppose that depends upon how you define ‘business’, but if you’re a small services company, you likely don’t:). If you’re successful and well managed, you pay your bills, you pay your suppliers, you pay yourself …often in that order. When business is steady and good you have a float to help bridge slower months….when business is steady and good you invest back into the business.
At bv02 we run a pretty tight shop, but every now and again a client holds on to their money longer than they are supposed to…or someone goes bankrupt…or a client loses their job and it takes their colleagues two months to figure out what’s going on. During times like these it doesn’t matter how well we run our business because we are small and can only absorb so much. Sometimes large clients don’t understand that 60 days can equate to a life time, not two months….and if they are late in paying us, we can be late in paying someone else. There are few things that I dislike more than telling a partner or supplier that we are late in paying them because clients are late in paying us. But like other distasteful things, it all rolls downhill.
How can you minimize this risk?
1. Amortize your contract billing over many months so that you reduce the risk of something not being paid on time
2. Invoice semi-monthly instead of just at month’s end to increase the likelihood of invoices being paid (the law of averages sometimes works!)
3. Review your list of outstanding receivables mid-month. This gives you a few weeks to work the phones with certain clients before month end
These things have certainly helped us, but every now and again we still get hit by something rolling downhill.
