Do you know what I mean by this? Simply replace my name with yours and youll see what I mean. This is how I describe to people what I am not (a bank!) - specially when it comes time to negotiate payment terms...
You see, far too many businesses think its okay to expect terms like 30 days net and so on. Terms = Credit. Do you just advance every Tom, Dick or Harry credit when they ask for it? No, of course not...
But this kind of expectation is tough on many small to medium businesses, heres why. Unless you provide something reposessible you are essentially trading value/time/knowledge and this stuff cannot be reclaimed. So not only you are advancing credit (probably without a credit check right, or determining how much they are good for...) but you are trading something that is inherently unrecoverable!
When its delivered its gone. So when a client asks you to bill them and asks for terms after youve done the work, you could be waiting around one heck of a while before you get paid. It varies from place to place, but 42 days is the unofficial average wait-time for many.
So think about that for a moment, you deliver the goods (literally and metaphorically) and you have to wait (in many cases) up to 42 days (more like two months real-world time) And what happens if you were still working for that client on another project?
Oooh, youre stacking up their credit arent you. In fact even a small service provider could be carrying ten or twenty thousand dollars worth of risk by extending services like this. Can you afford to lose that kind of money? I cant, and more importantly - why should we?
By the way, Id love to tell you this was a lesson I learned in a book...
So the next time you win some more work, think about the real costs involved - including the financial ones. Sometimes it is hard to stick to your guns when times are tough, but never let the promise of payment seduce you. Remember you are a professional and its not unwarranted for you to decline a credit request (which is what a new client asks for when they want terms) And if you really want the work, you can then request a good faith deposit on account to be applied to future billings - perfectly acceptable.
And if the client balks at the deposit request...this might be a sign of future payment issues, so count yourself lucky that you found out now. And lastly, if they gripe about the deposit, smile politely and remind them that Terms = Credit and you are not a bank however you would like to work with them so youre prepared to meet them half way: they assume some risk (the deposit) and you assume some risk by working without a safety net.
Until next time, enjoy your day! |
