Do you earn a salary? Salaries are like love and hot water. You only miss them when they’re missing. This is a little shout-out to all you salaried folk, especially those who have anything, anything at all to do with making payments to small businesses and freelancers: pay up on time. I don’t mean write a cheque on day thirty, or make a bank transfer on day thirty-two – I mean get the money cleared in their accounts by the due date. To those with a steady monthly salary, this seems such a bureaucratic little detail, but for a small business it translates directly and instantly into supplies, food and homeloan payments. And every day counts.
That ethereal number you’re punching into the company accounting system is actual money to a real person, and no excuse at all — ‘our creditors department is really busy’, ‘the MD is out of town’ — is going to change the fact that without that payment you’re leaving some brave entrepreneur well up the creek. For that entrepreneur, being up the creek means phoning your bank manager and grovelling, emptying the last of your credit cards, or selling your new computer to pay your only staff member. I’m not kidding, I’ve seen it and it’s the real deal.
At my small publishing company, we’ve found that the bigger the client, the longer they take to pay. Universities and parastatals can be the worst. Recently, a university client couldn’t pay on time because of an internal procedural error, and my contact there told me: ‘Will see what tricks I can pull out the bag’. I’m waiting, trusting there’s money in that there bag. Another client, huge by publishing standards, once paid late because out of tens of bank transfers due that month, one had been entered incorrectly, and as a result the entire payment run had had to be cancelled. (They’re well known for repeatedly paying late.) No one told us about it till I called days later and complained that we still hadn’t been paid. One parastatal took over six months to pay, despite numerous follow ups.
I know that salaried folk — for I was once one too — believe that salaries in small businesses come from the same magical well of money that large businesses draw from every month. That somehow we keep a couple months’ worth of pay aside, just for when you screw up a payment. But the fact is, in a small business every rand is already accounted for before your money hits their account. When a small business is growing, all its available cash must be used to fuel that growth. It’s often foolish to keep sums of cash in the bank when it could be used for furniture or supplies or equipment that the business needs to grow. (The same principle applies to large businesses, but their cash flow can usually be managed over longer periods of time.)
Small businesses usually don’t have the clout to force a larger client to pay more quickly. And there’s no law or ombudsman that’s realistically going to make a difference. So it comes down to you to move that money, Ms Accounts, Mr Clerk. If you want to be a part of boosting the economy, it’s as simple as that. You could make no greater contribution to helping small business grow. Make that payment now.
Arthur I agree with your post, although I find small business’ in general have poor working capital management policies. For example, many make use of expensive short term debt to fund long term growth, or rely on unnecessary bridging loans.
Growing a business should not depend entirely on waiting for payments from customers, but rather careful planning and budgeting. Other things that will significantly improve liquidity include renegotiating existing finance at lower interest rates, extending creditor payment terms, and making a provision for bad debts.
Ooh, music to my ears, someone else but me says this. Do you know the problem? Practically no one is listening.
The people that are listening are in the same place as you and the rest are like ‘oh, don’t exaggerate’ or (no jokes, someone actually said this to me) ‘if you don’t like it, just get a proper job.’ WHAT??? I have a ‘proper job’, you little rat, and I bet it pays better than yours. Okay, some months it barely pays at all. ‘Basic misunderstanding of economics,’ I say, ‘If I come back into the “proper job” market I’ll knock you and a couple of your friends out of it.’
I was recently told that my 30-day terms were actually ‘oh, wasn’t that 30 working days?’ when I queried a payment being a week late. Um, no. It never has been and it never will be. Don’t be obtuse. Have heard almost every other silly excuse in the book. People need to realise that I just plain don’t believe them.
As a result, I do tend to allocate my time better. If I have no current projects, I’ll do work from the late payment people. If we’re running a bit of a stressed ship, I’ll tell them to get lost. It’s about the only damn power I have.
But yeah, I’m feeling this. Maybe one person reading this will actually take some sensible advice….hope someone gets something from it.
Agree entirely…in a very similar situation right now – out of pocket with money owing.
kit, how did i know you would be here? heh.
this, too, is music to my ears. my biggest client is also the one who pays the worst — it’s often nearly 60 days before i receive payment for work that i have done for her. it’s really maddening.
telkom doesn’t seem to understand it when i say “my client is a late payer, can i pay 2 months at once?” and nedbank isn’t particularly understanding when i say “my clients pay me 40-50 days after they receive my invoices; my bond will not always be on time”. They want their money. Now.
so do i.
something else that needs to be said is that the credit granting institutions need to take into consideration small, independent businessmen while they are making plans for new products. i work for myself so i can’t get a laptop on the telkom installment plan or a vodacom contract? are you for real? why do i have to punch a clock for someone else in order to get these things? what rubbish.
as much as i scream the way to self-empowerment is starting your own biz, the major institutions in this place do everything in their power not to make this a desirable goal.
sometimes this country makes no sense.
themba — if you’re a one person operation, then it’s impossible to plan IF THE CLIENTS DON’T PAY ON TIME.
furthermore, IF THE CLIENTS DON’T PAY ON TIME, then it becomes difficult to go to the bank to refinance and restructure your loans in order to create a cushion upon which you can plan for late payments.
[why yes, i am in this situation RIGHT NOW. can you tell?]
i have two creditors: nedbank and telkom. that’s it. no car finance, no furniture finance, nothing else. nedbank is really intransigent on the “bond will be late because client’s 10,000 payment is being paid 50 days net instead of 30 days net” it’s like.. they can’t understand the concept of self-employment.
telkom are a bit more willing. funnily enough, i have my own personal contact at telkom to whom i can say “this is going on right now, can you float me for a bit”. as a SMALL businessman, it’s clear that i don’t worry such a contact at telkom [i've tried].
i do, however, have that kind of relation with bankers at capitec. but the type of visa that i have here means that i am unable to use them for the purposes that i need them. if i could, i would, believe you me.
Hear, hear! I work for a huge company but my wife runs her own little business, so I see both sides of the story and the big guys don’t play fair. Like a friend always say, it is easy to sh*t when your stomach is full. The problem is that the finance guys in the company think they own the company. In honesty, strict rules and control is necessary in a big company to facilitate effective control and prevent fraud, but some small companies cannot give 30 days.
Maybe somebody can enlighten me but I’ve been told that one of the big supermarket groups insist on 90 days. In the meantime they sell the goods, bank the money and earn interest on it until it is time to pay. But after 90 days they scrutinise the invoice and if there is a mistake, they don’t pay until the correct invoice is supplied, stretching it to 120 and beyond.
I have also been ignored by a client who was going away for the long holiday. He merely turned around and walked away when I asked him when he will be paying me. I also had plans for that long weekend, but I ended up having to cancel my plans and explaining to my family why we’re staying home.
And so are we – waiting now for 6 weeks for a contract to be approved that the client wanted expediting at the end of April And yes, we’d put aside the space to service them as soon as their payment came in. Imagine our cash flow now!
Worse still, it means that SMEs end up paying their fellows late as well
Try doing work for the government, we cater for the Dept of Health here in PE and boy does Bisho know how to hang onto your cash till the last minute..
But the sad think is that i think no one cares. Everyone preaches entrepreneurship, but when it comes to paying?! You could write a book on the number of excuses these guys come up with.
Arthur there are a number of things you can do to solve this problem, but the worst thing to do is to either beg or expect your clients to pay you simply because you need the money. That’s a monumental waste of your time which you could be billing out to someone else.
My advise is the following:
1. Put strict payment terms into your contracts
2. Hold back on final delivery of work until you get paid in full or refuse future work (if what you offer really is valuable then they’ll pay. If not, then be happy that they’re paying anything at all even if it’s late)
3. Hire a badass lawyer who enjoys scaring the hell out of people. Most outstanding bills will be settled after one scary phone call.
4. Learn their systems. The bigger the company the more complex their payment process. Know that process well and use it to your advantage. Even better is to get your internal contact there to help you bend the system in your favour.
5. Finally, stand up for yourself and let your clients know that they are letting you down. Do it proudly without grovelling. If they need you then they will want to protect the relationship, and they do that by paying efficiently.
Good luck!
@ThambaB
Although I largely agree with what you’re saying, I get the sense that you haven’t yet tried to start a company out of your own pocket. I think its an ideal situation if you don’t have to wait for payments because you have more sophisticated funding behind you, but no amount of careful planning is going to work if those plans include being paid on time. I have tried and continue to try to plan and budget our expenditure, but if I don’t get that money by the due date say the 18th of the month… and then I still don’t have it by the 23rd it is unlikely I’ll be able to pay salaries on the 25th. No amount of planning can deal with this. As a small company, we don’t invoice enough different clients for there to be spare money. Often, we have large invoices outstanding from say 3 clients, none of whom seem to be able to pay on time. We rely on those payments to make salaries and rent, let alone grow. This is a reality of small business.
I have yet to encounter a bank which gives two hoots about the business plan or industry you’re in, let alone negotiating lower interest rates. You literally have to put up your life as surety and then damn well ensure you pay their banking fees regularly. Thats about all that banks in this country have to offer in terms of small business assistance.
Extending creditor payment terms? So giving a client more time to pay will make them pay on time? In my experience, extended payment terms make no difference. You just wait longer and have to explain why your terms are different and, no, the payment wasn’t made in 30 days. The only thing worth trying here is to break the payments up into smaller bits, which need to be paid more regularly. (Although you’ll probably just end up on the phone more often begging for payment…)
Making provision for bad debts? Hah! Thats funny. My company does software projects which account for all of our income. If one of our clients doesn’t pay us, we are in real danger. Clients have to pay. There are no other options.
This actually leads me to an additional thought… companies that insist on ignoring the payment terms they have agreed to in favour of their own. On occasion, usually large clients, seem to be so inflexible as to completely ignore the terms to which they have agreed when they signed the contract. This leads to calls of ‘Where is my money?’ being met by surprised accountants answering ‘Oh, we have a 45 day payment policy…’. This is just plain abuse on the part of companies that have no scruples about ignoring contracts. (end of rant)
As a freelance writer, I could not agree more. And it’s interesting to note that clients who always need copy “urgently” are generally the ones least likely to pay on time. Paying late is unethical and inexcusable.
@Craig
Yeah, all fine and well in Cloudcuckooland. Being a small business means having a small number of clients. If you had a lot of clients, you’d be a bigger business. You just can’t get tough on your clients when you know they’re going to give you more work. Strict payment terms mean nothing to them. I can sky-write my payment terms and shout them through a loudhailer until I’m blue in the face, but it means nothing to them, because there is no one person responsible to you. I work with a project manager, and for him, the world of accounts is just an abstract thing that the accounts department does. When I call the accounts department, the project is just some abstract thing I did and its just one more of 50 invoices that need to get paid in the next two weeks. Phone the manager, and he/she will give the accounts department a nudge and then everyone goes for tea.
Holding back on delivery is extremely tricky. Most companies don’t take kindly to being blackmailed. They’ll hop over to your competitor rather than give in. Otherwise you just end up having a horribly poisoned relationship with someone you need to deal with everyday.
Badass lawyers are much the same as holding back delivery. Forget about working for that client ever again.
The ‘Know the system’ is one of the only ways out here. Sending the accounts people chocolates and flowers seems to be the only viable option. At least they’ll remember you.
Unfortunately most industries are fairly competitive and although I agree that one has to stand up for oneself and preferably not make like a little girl who’s lost her puppy, being overly aggressive can backfire horribly.
One of the biggest problems, I think, is that the delays in payment are never long enough to take any stronger/legal action, but just long enough and unexpected enough to mess with all your planning. Just when you’re about to get hardass, they pay. By then you’ve delayed the bond payment and the bank is sniffing at your pocket.
I wish I could go to my dentist and say, gee, send me the invoice, I’ll pay it 90 days from now. Or how about Pick n’ Pay? Give me the groceries, get your money from [insert client here]. Or to the bank: ‘[insert client here] owes me 20 000, get it from them.’
Aargh.
You forgot the other cancer small business owners has to deal with, those trying to get you to do the work for free or at a very reduced rate, i.e., making it virtually free. I have learn’t the courage to say no to work they want done, even if it means I have to tighten my belt very, very tight. I refuse to do work for them, because the trouble and effort of getting payment from them wipes out what you get paid eventually.
I fully share the view that big business and government are the worst payers. They will pontificate about growing the small business sector but then undermine the sector by holding back payments.
@ ThembaB
When small business raises bank finance it is usually to finance their debtors who are not paying on time or taking extended terms. If the debtors paid promptly there would be far less need for bank finance.
At its most simple level debtors and stocks are the main current (working) assets in a small business and as a general rule…..
# Bankers finance debtors
# Creditors (within reason) finance stocks
It follows that the main current liabilities in a small business are usually the bank overdraft and creditors. Managing these current assets and liabilities effectively is the real key to success.
Hear! Hear!
I work for myself and was underpaid last month, this month – not at all.
And again the ‘%#**&’ in finance at the huge company that owes me money says: I’ll see what I can do but don’t think it will be before month end!
Unbelieveable…
Arthur
good article … I’ve run my own business and had to chase overdue payment. I’ve found it’s best to visit the client’s offices (if local) and wait for payment … accepting no excuse whatsoever and not leaving until the money is in your hand. Interesting, how many of their clients you meet while doing this. Controlled anger combined with polite determination can be useful. If the client likes your work, he/she will continue to order/pay for it.