I was in tenth grade the winter night our truck driver, Ed Calloway, started loading our basement full of cabinets and appliances, catalogues and office equipment – and anything else my parents wanted to salvage.
The next morning, the IRS would padlock the door of their high-end kitchen dealership, The Kitchen Shop, for failure to pay sales tax.
It’s not that my parents had intentionally diverted the sales-tax money from their gross revenues.
It was that they hadn’t collected those gross revenues – not even close. They couldn’t pay their suppliers on what they’d collected – let alone their overhead.
(We’d been living on credit cards.)
A number of things contributed to that mess.
But the biggest one: my parents had actually depended on their customers to pay a 30-day invoice. When they called to follow up, they mostly got excuses instead of money.
A first lesson in sanity.
In a few months, they were able to sell the shop – and themselves – to a slightly bigger company. And finally learned some basic business skills.
Lesson 1: how to get paid. In the remodeling business, only a damn fool waits until a job is done and then sends an invoice with 30-day terms.
They learned to structure their contracts with four payments:
- 35% down.
- 35% on delivery of the cabinets.
- 30% less $500 on delivery of appliances.
- $500 at the end, on client approval of the finished job.
Years later, they got a second chance to run their own shop and did fine – as long as they stuck to the schedule.
Rarely, they would give someone a break: The customer didn’t have their checkbook right then. Could they put it in the mail? Every time that happened, they got burned.
“But, Mary, that was decades ago. What does that have to do with me?”
I first adapted my parents’ sorry experience to my own practices in the 80s, then updated my policies as technology changed. In all that time, I’ve been stiffed twice. Three other times, clients tried not to pay – or at least to stall – but paid on time after one firm but polite email.
If you’re having trouble collecting on invoices, I don’t think the problem is your clients or the quality of your work.
I think the problem is invoices.
It’s too easy for clients to sit on invoices, blaming their internal processes for delays at every turn. In the Fortune 500, I understand it’s now standard to make agencies wait six months or more.
Well, I don’t choose to wait that long. Do you?
An invitation: get your money now.
You can have great cash flow and still go broke, eventually, if you’re not making a profit.
But you can’t even operate without decent cash flow. And I don’t have to tell you that cash flow starts with getting paid: In full. On time.
So here’s what I do.
I won’t bore you with stories of how I used to do it and what I changed over the years. Just know that over the years, I’ve gone from waiting a couple of weeks to get paid, to a couple of days, to about five minutes.
This is what I’m doing today, with today’s tools and technology. And it’s what I recommend for you.
It starts with the nature of the client relationship and the expectations you set up in the contract.
I have a mix: some clients on ongoing retainers and some for fixed projects.
The retainers are for long-term site management, which includes technical maintenance and developing content.
The arrangements are easy: we agree on an amount and a day of the month. They send me credit-card information.
On the agreed day of the month, I run the card and generate a receipt.
No contract is real unless it comes back with credit-card info and approval to run the card for a deposit of at least 50% of the total.
Short-term projects might have milestones, with me running the card for a specified fraction of the balance at each approval.
Bigger projects, like a multideliverable identity package, might have a number of smaller projects: usually a site, some print and some video. The contract will show the client the grand total and then break that number up into twelve or more monthly installments. I take the first installment as a deposit and then get to work.
I realize processing cards isn’t free.
But it’s not the fracking fortune stores pay for merchant accounts from a bank.
$30/month to get paid in five minutes.
I use PayPal’s Virtual Terminal. It’s $30/month and a bit less than 3% a transaction, and the funds are in my PayPal account in under a minute. I didn’t have to buy a terminal or accessories; I do the whole thing on PayPal’s website (in my office, on a hard-wired Ethernet connection).
For me, it’s worth it. I would much rather pay a modest monthly fee to have all my outstanding receivables right now, instead of having to wait weeks or months for a paper check. What’s more, I have been known to bury that check under a pile of other papers on my desk for several days before I finally make the deposit. All the way around, running cards is so much simpler and cleaner.
I believe I can now pull money down to my real-life bank accounts overnight for free; it used to take a few days.
Could you get Virtual Terminal without the monthly fee?
If you have PayPal’s Website Payments Pro, Virtual Terminal is included. You’re already paying $30/month for that.
So you’ll pay nothing for the extra functionality, and it may already be turned on in your account. You’ll just have the transaction fee.
I would never call myself the world’s most efficient business owner.
There’s plenty of administrative stuff I’m not so great at.
But thanks to my formative years in the kitchen business, I do know how to get paid.
And now, so do you.