#30: Why Small Businesses Fail – Part 2
In my previous article we stared to look at the main reasons why a small business might fail, and today we are going to continue with this.
If you are doing business to business it is a different game.
If your clients are other small businesses you will need to be careful. Some of them will try every trick in the book to delay paying you. It is amazing how creative other businesses can be! If your terms and conditions say you want payment in 30 days do not believe that they are making every conceivable effort to comply, because they are probably not! If you think they are, then you are potentially deluded.
If, on the other hand, your clients are going to be big companies then you still need to be vigilant, as they are quite often inefficient in terms of paying product and service providers. They are not paying you because they don’t want to, they are not paying you because they can’t find the invoice, they can’t match it to the transaction, or they have paid someone else.
One of my clients is a software company who sells to large companies. The husband does the selling and delivery, and the wife does the bookkeeping and invoicing. She is on first name terms with at least two people in the accounts payable department of their clients.
She knows whose tray the invoice has to be in and by what date to hit the next payables run. From time to time she will send them tickets to the theatre, or a case of wine, to say thank you for their on-going business and prompt payment; they have never had a bad debt in 18 years, and their days sales outstanding is as low as you can possibly get it.
But it is time consuming. One of the small business consultancies where I used to be actively involved has a secret weapon in the form of their bookkeeper, who also does the invoicing.
If you assume that all the invoices from the previous month are going out on the first of the next month, then this is easier to follow. So let’s assume that the next wave of invoices is going out on the 1st October. On the 30th September she will call each of the clients, advise them that the invoices are being done, and then check that the amount in question is what they are expecting.
The reason she does this is to prevent a situation where after several weeks silence they are chased and then claim that it was not what they were expecting. So, she is taking away the ability for them to play the “not what I was expecting” card. Having sent the invoices, she will then telephone to check that they have been received, which takes away the “never received it” card.
She does both of those in the immediate timescale of the invoice going out and as it gets closer to the contractual payment date (30 days), she is all over them for payment. That is the way that you have to do it if you are a small business, but it is time consuming.
Try to keep this in mind when you start taking regular clients on, otherwise you may find yourself in the red.
So, a final word of advice: Don’t assume that people will pay you, or pay you in a timely fashion, if you have done the work.
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