Tag Archives: accounts receivable

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Business Finance Resolutions for 2012

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Happy New Year!  Thank you for coming back in 2012.  The New Year is here and the time is ripe to take a fresh look at how you can bring more revenue and profit to your Freelance business.  The purpose of this blog is to inform and inspire readers to create the conditions that will generate a successful and rewarding Freelance consulting career.  Let’s get the ball rolling and look at how effective financial management promotes that goal.

Resolve to skillfully manage cash flow

Cash is king and cash flow is the life blood of every business.  Nothing flows unless the cash does.  Cash flow management means knowing how much money is expected to enter your coffers and when those checks are expected to arrive,  along with knowing how much money must be paid to creditors and when those checks must be sent. 

Even if you show a profit on your P & L,  it’s possible to have insufficient cash in hand to pay monthly bills and other accounts payable.  We all know that working as a Freelancer can be a cash flow nightmare,  so it’s vital to get arms around the accounts receivable,  or else sleepless nights will haunt.

Cash flow management actually begins in client meetings.  Once your project fee has been addressed and agreed upon,  diplomatically state that 15% – 20%  is paid at contract signing and that invoices are payable upon receipt.  Payment schedule for the balance will depend upon the length,  type and cost structure of the job. 

Whatever you do,  don’t allow more than 35%  of your fee to be payable at project conclusion  (unless it’s a small job).  Take steps to discourage the client from preserving his/her organization’s cash flow at your expense.  Write payment terms into the contract,  right along with the scope of your work,  deliverables and start date.

Resolve to get paid what you are worth

Establishing value and getting paid for same is the goal in every service business,  whether it’s teaching piano or being a nanny.  Your pricing strategy should reflect the value that your services bring to the client.  Needless to say,  pricing supports  cash flow and revenue.  To identify an appropriate fee range,  pricing experts recommend that you focus on four factors:

  • The perceived value of the services your provide
  • The demand for your services  (and your reputation as a purveyor)
  • What’s involved in the delivery of your service  (time = production cost = the Freelancer’s cost of goods sold)
  • Your mark-up / profit margin

Resolve to create and analyze the basic financial statements every quarter

Freelancers have a good idea as to how we’re faring financially,  because we either have the desired amount of money in the bank or we don’t.  We either have jobs in-house or we don’t.  We have either big jobs in or small jobs.  Like a balance sheet,  your bank statement provides the snapshot of your financial picture at a given moment.

There’s nothing like creating and then actually contemplating and analyzing one’s cash flow and income  (profit & loss)  statements to truly grasp your true financial picture and most importantly,  receive clues as to what would be advantageous for you to do about the business model,  sales and/or marketing segments of your consultancy.  Smart business decisions are invariably data-driven.

As you analyze your financials over the years,  you may identify regularly occurring busy periods and decide to hire temporary help or bring in a Freelance sub-contractor,  to give you another pair of hands at those times and allow yourself to make more money. 

Slow periods will likewise be identified.  You’ll be encouraged to find a way to either stimulate business during those times by incentivizing clients to hire you,  find temporary work,  find classes to teach (if that’s one of your competencies),  or engage in prospecting,  networking and professional development activities.

Next week,  I’ll return with more business-themed New Year’s Resolutions for 2012.

Thanks for reading,

Kim

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Kill the Deadbeats!

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“Businesses don’t fail because they are unprofitable.  They fail because they get crushed on the accounts receivable side.”  Brian Hamilton, CEO  Sageworks, a  financial research firm in Raleigh, NC

A  2005  survey of American Express  small business customers found that  49%  had cash-flow concerns, with accounts receivable as the primary concern,  and  9%  of  that group worried that their cash-flow troubles were sufficiently serious to impede their ability to compete for new business.

A  2007  survey of  2000  Freelancers found that  77%  of us have had trouble getting paid at some point in our careers as independent workers.  Of  the  77%,  late payments have been endured by  85%  at least once;  42%  have been stiffed at least once;  and  34%  have received less than the invoiced amount at least once.  The survey also found that Freelancers  spend 4 hours/month on average pursuing late or unpaid receivables.

Since Freelancers are  excluded from the Fair Labor Standards Act (FLSA), which would require  the Department of Labor to assist us by investigating claims of involuntary unpaid labor (slavery!) and would authorize the Commissioner of Labor to bring criminal proceedings to recover wages owed,  we are more than a little vulnerable to this growing phenomenon.

Our options are weak.  Hiring an attorney is costly and does not guarantee payment of monies owed.  Small Claims Court is time consuming and winning a judgment does not guarantee payment.  Writing a  thorough contract,  which specifically details  services requested,  pricing,  invoice due dates and late fees doesn’t help much either if  a  client lacks the ability to pay,  or simply refuses to pay within a reasonable time frame (big corporations are infamous for this).

Smaller businesses may be caught between a rock and a hard place:  they can’t pay you until someone pays them.  Big corporations have the power to dictate payment terms favorable to their own cash-flow objectives.  Over the past several years,  including the so-called  “booming economy”  years,  many big corporations brazenly increased the turn-around time on accounts payable to their small vendors —because they could.

So what’s a Freelancer trying to maintain respectable cash-flow to do? Take every precaution and watch for signs of problem clients.  Before taking on a new client,  maybe ask around and find out if you know who’s done business with the company.  Maybe check out the BBB and find out if  a complaint has been filed and its resolution.

Milestones and money

Establish project milestones and attach an invoice to each one.  First,  discuss your project with the client and get agreement on the scope of the project and the time table.  At the contract signing,  get a deposit of 10-25 %.  At key junctures in the project,  get another 20-25% payment,  if possible.  The goal is to avoid the trap of  waiting for a large sum of money at the project’s completion,  when the client possesses the complete deliverable.  Hint:  if  the client is unable to make the initial deposit on time,  brace for trouble!

Deadbeat radar

Pay attention to client motivation—are they looking for quality work,  or the cheapest price?  If  a customer comes to you primarily for price,  then price is what will make that client leave you.  Moreover,  they will use price to manipulate you.  So do not be desperate!  It’s hard, I know, when you’re just trying to be solvent.  But customers like that pay the least money,  cause the most headaches and may not pay what they owe,  on time or otherwise. They are best avoided.

Beware the client who is in a big rush, frazzled and frenetic.  This person will appear suddenly and may also be overly concerned with price.  Once the deliverable is in hand, your invoices will be ignored,  as he/she is always  “too busy”  to deal with annoying things like paying you.  Insist on receiving as much payment up front as you can (try 50% down, including a premium for speedy delivery). You may never see the rest of the money,  or you will have to chase and wait.

Beware also the OCD type who is hyper-controlling and fussy.  If you must go there,  be excruciatingly clear about the project scope,  deadlines,  expectations,  project milestones, etc.  Put everything in writing and make sure they agree,  sign off and are prepared to make all milestone payments.  This client will be tough to satisfy and will pick you apart,  demand revisions and may withhold payment,  claiming that you haven’t delivered satisfactorily.

Put into writing how many revisions are included in the project base price plus the price for revisions.  Consider adding  25-30%  to your usual quote to make up for the time you’ll spend responding to incessant emails,  phone calls,  criticism and demands.

Recurring nightmare?

If collecting receivables is a persistent problem for you,  then it is likely that you are not qualifying clients properly or your product is considered deficient.  Clearly define your deliverable.  Set expectations for your services and make sure that you understand what the client wants and the client understands what you will deliver.  A verbal agreement should precede a written proposal/contract that specifies the work you will do,  the timetable and payment due dates and should be signed by both you and the client.

Thanks for reading,

Kim