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This cash flow booster is almost too easy

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[1].
  • 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…

[1] 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…

-jr

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.

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Tech Consulting in a Tight Economy

Independent consultants may be in an enviable position within the world of business. Our services, by their very nature of not being tangible, allow us to be more agile. We can adopt to changing market demands.

This is especially true for us IT consultants. After all, regardless of how many folks are laid off, how badly capital budgets are cut in the near-term, etc. – nearly every organization has investments in IT infrastructure. And it’s nearly a given that a good part of it is necessary to supporting the mission of the organization — through good times and bad.

In fact, with layoffs and hiring freezes, some organizations may increase their use of consultants and contractors because it doesn’t require the same approvals that hiring a new employee would and it doesn’t commit them to keeping another body around. You’re also probably going to be “cheaper” than keeping someone around with your expertise full-time.

That’s all well and good but what should you actually DO to increase your chances of being hired for a gig (or kept on) in more uncertain times?

Aaron “Crooky” Cruikshank, the Founder of Friuch Consulting, sums it up quite nicely:

“Find new pain points, serve them.”

That may sound disingenuously simplistic to some but it’s really the essence of serving your clients – in good times and bad.

Elsewhere he makes an observation and argument that knowledge workers, which includes us, have always done better even in economic downturns:

http://friuch.com/now-is-a-great-time-to-start-consulting

And in a prior post where he advocates against “undercharging”, he hits on it also from the angle of the tendencies a few of us may have during an economic downturn:

“People starting out in consulting today might think that they need to go down market to succeed in a shrinking economy. I respectfully submit that such thinking is bunk. What you need to do is find a niche that is not something everyone else is doing and sell it at a premium. For example, when the economy is tight – offer a service that makes people think they’re saving money. You’re a webmaster? People still need websites, even when the economy is in the toilet. Make your niche designing websites in the most affordable way possible or link your design techniques to a measurable return on investment (ROI) so that the client can be sure they got their money’s worth.”

I’ve often heard Dan Kennedy, a highly successful consultant as well as marketer, state that we consultants are selling “dollars at a discount”. That is, we are (often) hired to save our clients money, increase the money they receive (improve ROI), or (indirectly) help them avoid some other pain that would cost them money at some future date.

We can talk about cool software features and faster IP networks but everything we do must be translated into its benefit to the business. We’re in the “dollars at a discount” business. Ponder that and consider how you fit into that arrangement with your clients. Then consider whether you are effectively _communicating_ your worth in terms of business benefits.

Now some of us will certainly suffer during economic downturns….just as we would if we relied too much on a single client (such as our ex-employer turned first client). Anytime something impacts our client relationships our weaknesses are exposed.

Warren Buffett used the phrase “After all, you only find out who is swimming naked when the tide goes out” shortly after September 11, 2001. He was referring to insurers who weren’t prepared for the worst and thus were suffering mightily – some fatally. It’s an appropriate metaphor for many recurring situations in history – and thus in business and in life.

If one of your weaknesses is your new client pipeline and thus far you’ve been getting by because you’ve had one major client that accounts for most (or all) of your income, this may be the time to evaluate what you should be doing to mitigate that risk a bit. Purchase a bathing suit, if you will.  🙂

On the upside, when business does slow down a bit for us, there is more time to spend on some of those put off activities such as building up a marketing funnel (generating leads, encouraging referrals, increasing repeat business, list grooming, relationship building). If you aren’t familiar with these topics, spending time may include educating yourself more, finding some mentors, and seeking out other (farther along, more successful) consultants, etc.

As a side note, there may be some promotions you can tie into the current economic concern mindset that you can offer specifically to your current (and past) clients. How can you be their dollars for a discount in this time of their greater need for capital?

How indeed…

(Within all problems lie opportunities).

-jr

(adapted from the very post I made, which was e-mailed out to the first few subscribers to join ITConsultingLessons.com, on 11/29/2008).