by Jennifer Riggins
Maybe it’s just me, but I find the biggest challenge of being an entrepreneur is the necessary evil bit: Getting Paid. But let’s be real, it’s kind of an important thing and when we aren’t hardcore about getting down payments and at chasing that money afterwards, we’re risking our livelihood.
And I’ve known quite a few people who gave up on their dreams for a corporate job they didn’t like just to pay off the debt that accumulated from unpaid contracts.
About a month ago, I was struggling with payments. I had written a large project, delivered it on time and never heard from the client again. I also had a big client, with whom I was in the final stages of “negotiation”. Although there was nothing particularly to negotiate. Rather we were prioritizing my tasks and I couldn’t help feeling worried, the same thing would happen.
Then I met Ken at a our local entrepreneur Meetup at a coworking in Barcelona. A kind Irishman and owner of the same bootstrapped IT business for 18 years now. He gave me a bunch of fantastic advice and last week presented even more to the whole group. Today I’m sharing his wealth of experience, hopefully, to help you learn more about how to get paid as an entrepreneur.
How to get paid on time and predictably
Getting paid isn’t just about the immediate gratification of not getting evicted from your office and home for another month. When you can get paid regularly, predictably and on time, you are able to plan. You can invest in research and development, even hire staff. In other words, it enables the future of your small business.
His talk, his business, and this post are all based on how to ‘almost’ assure your success in getting paid, with these four steps:
1. How to minimize risk
2. How to get paid as quickly as possible
3. How to do as little “free” work as possible
4. How to ensure you get “all” the money
Ken says that his business has had long-term success because of two things:
1. “We do excellent work, and we get paid in a timely and predictable fashion.”
2. “We knew if it all went wrong, we can pay everyone on our side — we can sleep at night.”
So, how can you get to this level?
How to minimize risk in your small business
We could also call this section: How to minimize your risk of not getting paid and how to minimize your liability.
Just as important as your delivery dates are to your clients, payment milestones should be an essential part of your contract. Ken, following SAP accounting software’s example, calls Stage 0 (zero) when you get paid and Stage 1 when you start working. You don’t start working until you get paid.
Smart Tip: Don’t call it a ‘contract’ – you’ll close faster and it’s less threatening to the client if you call it ‘paperwork’. And keep it to one and a half, maximum two pages, but then you can double all that in a copious addendum.
Now, this doesn’t mean that they will pay it all ahead, but most companies give a 50 percent down payment. If you are like me and you often bill hourly, you can sell them a certain number of hours ahead. Good companies will appreciate this buying of your time in advance because it ensures your commitment – they realize that if they don’t do that, you could have other priorities.
What are your prerequisites to getting paid? A bank transfer, cash or a credit card, or PayPal payment. There are also companies that simply insist on a purchase order presentation, which is reserving money in the company bank account for you.
Smart Tip: Many companies say they can only do a P.O., but businesses like Amazon don’t accept that and require credit cards. They couldn’t use Amazon Web Services if they only accepted a P.O., so, certainly any medium to large client can get around this P.O. “requirement” when they need to.
How to Get Paid as Quickly as Possible
“Do everything you can to get your payment terms below 30 days from invoice,” Ken said. You can usually get paid earlier if you accept less. For example, one of my clients makes me wait 30 days before they pay, but if I accept one percent less (usually around six euros a month), I can get paid within three days. As Ken explained, “Purchasing depts don’t get a bonus based on if you do the work, they get it if they save money.” In other words, they won’t mind paying on time if they can save a couple of bucks.
Ken even goes so far as to recommend trying to insert a clause that lets you charge interest on late payments. This gives you a bit of leverage to get paid on time — even if they won’t sign with this clause, they are more likely to pay on time with just the threat of an extra charge.
The larger the client, the more leverage you always want. Ken says that, if it’s a big client, try to contract that client’s law firm, so you can skip over the bluffing and get the best deal you can get.
“If the customer isn’t going to pay, there’s very little you can do, [but] try to learn as quickly as possible,” he said, recommending you should always structure payments to assist with risk over time, always getting a percentage up front. “Multi-payments mean more overhead and more work but it’s worth it,” Ken continued, also pointing out that more payments ensures better customer engagement.
In the end, when a customer is slow to pay there’s little to do except to try to “convey” — note, not threaten — how valuable a resource you are, but that you’ve got other opportunities. “Hey, we love ya, you’re a great customer, but, at the end of the day…” You can even play good cop-bad cop, with you as the customer-facing team member, always apologizing while your accountant does the nagging.
And at your end, to limit your liability, always include a liability clause in your contract that is “the maximum you’ve received to date” or “Limited Liability is what’s been paid for the project up to date.” This means that, if, for whatever reason, something goes awry, as Ken says, you only have a limited downside (sometimes the last to touch something gets blamed, regardless of the rights and wrongs).
How to get paid for “Free Work”
“Free Work” is the free advice you end up giving as you try to close the deal and what you end up doing at the end of a project. There’s always something extra the client asks for and, well, it’s hard to say no, especially when they are holding on tightly to your payment.
During this time, track all interactions, like a lawyer, including, timing every call, translating that to dollars. This “free work” adds up to compelling metrics and a case for further partnering.
Ken says this is a good moment to try to move your clients onto a monthly Support Agreement, where you stay on retainer. It stops you from giving away that “free work” and helps you get regular work serving the client.
How do YOU get paid for your time, on time?
We know this is just the start of overcoming one of the most common hurdles to growing your business successfully. Tell us more tricks below!