Cash Flow Acceleration

I recently received a call from a client asking what he should do about an opportunity for $30,000 worth of surveying work.

While not normally a question he would raise with me – on this occasion it related to an issue that we had been working through during recent coaching sessions. Essentially the client offering the project had a bad track record with the practice – slow payer, price shopper, fee negotiator etc, etc. On a scale of A to D - this client was a ‘D’ and had already been identified as a concern.

As always with ‘D’ clients we were seemingly looking at a trade off. The revenue involved would assist the practice through a lean period, particularly as the client needed to move quickly with the project. On the other hand, it would only help if my client could defy history and accelerate his cash flow from this client.

So what is cash flow acceleration?

There was a time in business when accelerating your cash flow meant being paid in advance of your normal terms of trade. Sadly today the definition really means being paid on time by a majority of clients and it is more and more a critical element of running a successful business.

Getting paid is the fulfilment of the process of selling and providing your product or service. In that sense it is simply a part of your professional relationship with your client. Equally, being paid on time is also a part of your professional arrangement. It should simply be the result of a quality, on time service.

However just as we need to educate clients on the value they receive – the issue of payment needs the same attention in many cases. You should clearly establish your terms of business at the very beginning of your client relationship. Having established those terms there needs to be a very definite plan to ensure that the terms are kept. A serious attitude by you or your firm will in most cases be respected by the client – particularly those clients who share your principles in the way they do business. Also attitude to payment will be a key indicator of client quality. It is rare to find a ‘D’ client who pays on time.

The psychology of meeting debts is a positive factor in the process. Most people actually want to keep their promises – whether they relate to payment of bills or on time delivery. By reminding clients of payment the emotional response is usually a desire to fix the matter..

However when your requests for payment go unheeded you have to consider all your debt collection options from personal calls, visits, debt collection letters, debt collection agency letters, legal letters and action.

It must be understood that the longer it takes for a client to pay the chances of getting payment are slimmer by the day.

What is the benefit?

The way I see it, there are two key benefits to accelerating cash flow.

The most obvious benefit is improvements in cash flow through securing deposits, interim payments and prompt payments on completion.

However there is another less obvious, more powerful benefit. The systematic application of good credit control will result in greater acceptance of your terms by clients. That then means less time spent on what for many of us is simply a chore. In turn it allows those responsible for this role to move onto more positive aspects of their job with far more energy and enthusiasm. And usually that means they will then be able to deliver better customer service, develop better products and services and build a far better business and enjoy doing it a lot more.

How to implement a cash flow acceleration program

Here are some key considerations that you might like to build into a system that will work for you:
1. Consider the payment of fees in your client selection criteria then build the relationship and demonstrate your value.
2. Quantify the fees in advance at the initial meeting with the client/prospect, or at the first transaction.
3. Educate new clients upfront by clarifying the expectations of your payment terms, also explain and add some free value up front (i.e. info sheet, newsletter, regulation updates)
4. Endeavour to get deposits for up to one third of the total fees, upfront.
5. Where practical, present the account to the client when giving over work or send out invoices promptly (i.e. within a few days) and regularly provide interim bills for large work. This sends a clear message that prompt payment is important to you.
6. Clearly print on invoices your bank account details for easy internet bank transfer payments, or, for regular work periodical bank payments for credit accounts. Request bank transfers as a normal way of conducting transactions.
7. After making payment terms - ideally 7 days or for large corporate accounts 30 days - follow up promptly. Again this sends the message that you are a professional and payment is important to you.
8. An alternative to verbal follow up is a series of well written personal but, standard letters 1, 2, 3 followed by threatening legal statements if required. This method has its place however is a poor alternative. Verbal follow up is always recommended.

Now about that client I mentioned at the beginning. His ideal outcome was obviously to be awarded the $30,000 project but be paid on time. We agreed that he needed to put in writing that he would undertake the project based on a one third deposit with the balance on completion. He also emphasised that the practice would need to make room for the project given the urgency – thus adding value.

The result? The customer wrote a cheque, paid the balance on completion and the surveyor more importantly now has the deposit requirement on all new work proposals with the obvious benefit of accelerating cash flow.

David Wolrige