This tip is so simple that I hesitated…to pass it on. I was worried that you’d toss an old busted Linksys wireless router at me… or some other similar sign of your displeasure.
But I decided that you may just find it helpful to your bank account – as I did. I am following the (paraphrased) maxim that: “what now seems obvious – once you’ve discovered it – once wasn’t”.
It is something you can can put into action RIGHT NOW within just a few minutes… and get results in a matter of several days, at most. Thus…
For the longest time I invoiced my IT consulting clients once a month on or around the 1st of every month. So (sort of) every 30 days… Not exactly atypical.
Then I started experimenting with variations, more out of necessity at the time. Cash was tight – what can I say?. One experiment was billing out sooner than 30 days if a project was substantially completed prior to the next billing cycle.
An example is a project that is worked on from the 3rd thru the 5th. Rather then waiting until the 1st of the following month came around I’d bill out immediately on the 6th (or even the 5th sometimes). Why wait 25 days to send out an invoice and then another 30 days for payment (thus not getting paid until 55+ days had past since I’d done my part)?
But that’s NOT actually today’s tip…
It’s just a lead in to a series of simple changes that improved my cash cycle… (but you may want to implement the above if you haven’t already).
In any case, no one seemed to mind the change so I decided I’d keep questioning “the usual ways of doing things” until someone balked. (And, a story for another day, even when someone griped — after testing the waters a bit, checking my back, and doing the math — I usually opted to stand firm and it nearly always worked out in the end).
I don’t remember the entire series of items and order I tried them in at this point but I can tell you four of the essentials that I stuck with:
- Billing out every 15 days rather than 30 days (and sooner if, as mentioned already, a project is completed sooner). Heck, maybe I could have gotten away with billing every 7 days… who knows? But 15 days worked well enough, at the time, without changing ANYTHING else… it certainly cut two weeks off of my cash cycle.
- Stating all invoices are “Due upon receipt. 1.5% per month financing charge applicable if not paid within 15 days.” (check your state laws; I’m told that many states regulate what the maximum annualized late payment interest percentage can be. Mine works out to 18% but I’d drop a client – and write off the accounts receivable – probably long before it ever got to that. This reference may be enlightening if you want more info…or frustrating if you want an actual answer..heh. If unsure, remembering I’m not providing legal advice, a safe bet might be to see what your local utility companies have in their fine print and match it).
- Automating invoice payment late notifications so they’d go out like clockwork. With the automation I’d be sure – and the client too if it happened even just once – that I was on top of things. A professional, but direct, reminder sent out on the 16th day, without exception, does wonders. It is easy for a client to wiggle and squirm about paying late when you are clearly not on top of following up on late payments immediately yourself. Not so when it’s consistent done. And automation is the ultimately consistency. I quickly cleaned up and automated all of my time tracking and invoicing in general for similar – and other – reasons.
- Simplifying – and automating – as much of my invoicing and time tracking tasks as possible. My consistency encouraged consistency from my clients which has only increased over time. Stragglers or newcomers are quickly brought into line professionally but rapidly…and without extra effort on my part.
I’ve also experimented and ultimately implemented other techniques, some more dramatic in their (positive) impact on cash flow. For example, getting paid prior to starting work, prior to having even having met with a new client. This, and others, have become a part of my modus operandi. Many are advanced techniques, but that’s a topic for another day…
 I use FreshBooks for my own invoicing and time tracking. It also handles late payment notifications automatically. You can sign-up for a FREE account here. I’ve been a VERY happy user for a couple of years now and recommend them without hesitation.
I love completing a day of work with a client and having them immediately receive a professional invoice (emailed) before I’ve walked out the door (Freshbooks supports postal invoices too…without requiring you to print/stuff/lick – they do it for you).
It’s not uncommon for me to leave on vacation and, while away, take a quick look at my inbox… to see an apologetic reply, from a client who is a bit late paying, to my automated reminder.
Take that procrastination! Things are getting taken care of – even if I’m away, procrastinating, or busy with a client doing (billable) work. It has done wonders for my cash flow…
P.S. If you enjoyed this particular tip, I invite you to drop me a line via e-mail and say so. If you thought it totally sucked, I challenge you to put your typing where your mind is and tell me why. If you implement any of these techniques – or are inspired to come up with your own as a result – please share it with me. And, once you get back results, share those too.