Small Business Woes: Making Sure You Get Paid

One of the biggest worries for small business owners is often getting paid. When you don’t have a large operating budget that can absorb payment delays, they are an absolute nightmare. Chasing down clients for a late payment is difficult enough, but if they refuse for some reason, recovering an owed payment can end up costing more money and time than it’s worth.

Of course, larger businesses have this problem too. The smaller your operation, however, the more devastating an overdue invoice can be. After all, your landlords and service providers won’t accept the same excuses your clients are giving you.

Recognizing and Handling Issues With Clients

A lot of the work when it comes to getting paid on time can be done before you sign on a client. Clear expectations, on both sides, create a better working relationship and reduce the risk of disagreement about payment.

The better documentation you have at the start of a relationship, the easier it will be to recognize the dream clients — and the nightmare clients, too. If someone balks at agreeing to a robust work contract, you have the advantage of dealing with the red flag before any agreement has been signed. That’s why you should make contracts part of the client onboarding process and insist on clear payment terms.

Making sure that your quotes are accurate is one important way of avoiding payment issues. This helps both the client and you. If you overestimate on a job, it’s harder to plan for less income than you were expecting. If you underestimate, a client might balk at the final price and cause a headache.

The more thoroughly you do this preparation, the easier things will be if a problem occurs. Being able to point to a clause in a contract can be a good deal more convincing than trying to persuade someone to pay without one. In many cases, the existence of such documentation will help prevent the need for legal action to claim outstanding balances. It’s also vital to be extremely clear about whether or not you have a refund policy, and if you do, what its terms are.

Many choose to add “arbitration clauses” to contracts for the very purpose of avoiding the need for legal process in the courts. Enforcing a contract, especially one that involves payment for services rendered, is time consuming and costly through the courts. Suing someone because they didn’t pay you is a self-defeating exercise, for the amount of money it costs to actually go to court. There’s always small claims for smaller balances, but an arbitration clause is often cheaper and quicker, because third party arbitrators have a great deal more flexibility, and their services are easier to acquire. For small businesses especially, more affordable legal assistance is popping up in comparison to hiring a lawyer in an emergency situation, which does a great deal to help avoid those costly lawsuits.

Creating a Cash Flow That Can Handle Delays

If a client does get stubborn, it can take a while to recover the payment owed to you. It may not happen often, but in worst-case scenarios if you have to take someone to court, that process can end up costing money as well as time, further eating into your profit on the work.

Bigger companies have accounts payable departments which manage and oversee operations such as payments to suppliers, bills, freelancers, and pretty much all money leaving the company. As a small business, you likely don’t have the same resources, but it’s still a very good idea to keep careful track of when and how money leaves the business. This includes setting a schedule of vital operating expenses to ensure they don’t get missed, as well as establishing a purchasing schedule for expenses related to individual contracts, to ensure that you don’t start spending money of your own before a client has signed on the dotted line.

Controlling when money leaves the bank is the most important part of a safe and healthy cash flow. Even large expenses can be absorbed if they’re predictable, and maintaining that predictability as much as possible protects you from more unpredictable events, like an overdue bill, office equipment breakdowns, and all the other pesky emergencies that plague a small business’ operations.

As your business grows, this management of money moving through the business can become quite difficult. Optimizing your cash flow to ensure that there is enough of a buffer to handle late or missed payments from clients may require a higher degree of education in business finance and analytics than you posses, so outsourcing that task set or learning the skills yourself will eventually become mandatory.

Good financial management helps prepare you for situations where clients give you trouble about paying and reduces the risk that you’ll have to take on debt to keep the business afloat. Most businesses have at least some debt, you shouldn’t be afraid of loans as a business owner. But the last thing you need is to have to take one on to cover work that you didn’t get paid for.