When it comes to getting paid and paying up, are you a bully, victim or both?
Today, a big customer finally paid his invoice—three weeks late! One of the biggest headaches that small and medium-sized enterprises (SMEs) face is getting paid on time.
As I held the cheque, my mind instantly recalled a presentation at my daughter’s school. The presentation was for parents and the subject was bullying. The speaker asked for those whose children had been bullied to raise their hands. As you can imagine, nearly every hand went up.
Then the speaker asked for parents of bullies to raise their hands. Pin drop silence and no hands raised.
“How can it be that most kids are bullied, when no one’s child is a bully?!” asked the speaker.
Let’s back track to SMEs and late payment. How do you deal with suppliers that you can’t pay because your customers haven’t paid you? Spoiler alert: ignoring the issue isn’t a solution. It’s a tough fact to face when you realize that although your company is profitable, it has no money to pay its suppliers. It’s a cash flow issue. So, how can we manage this process better, more efficiently and effectively?
Here’s my approach when I enter a new company.
Step 1: Bird’s eye view of the whole picture
Pull data. Look at past records. Read the books. Take it all in starting with the history of the company’s payments.
Is paying late a trend? If so, it’s time to reconcile.
Step 2: Tell the truth and pay outstanding invoices
It’s now time to connect with each supplier and truthfully explain the situation. I work with each supplier to create a mutually satisfying payment plan and stick with it. I roll up my sleeves and start paying invoices in order of priority.
If for some reason I can’t stick to the agreement, I let the supplier know. It’s easier for suppliers to deal with bad news (it’ll be another 10 days before I get paid) then deal with the uncertainty of silence (is this company going bust?)
Step 3: Money measurement
Finally, I build a money measurement plan that shows me how much money I have at the end of the month. This acts as the plan to pay suppliers next month.
I look at my cash in hand every week so that I can easily and quickly spot if I am likely to face a problem next month. This means that I can get ahead of any potential problems instead of spending time dodging supplier bullets.
So next time you feel as though you’re being shortchanged by customers, have a look at your payment history. You might be surprised that you’re not only a victim-you’re a bully too.
If you can’t pay on time, don’t procrastinate and let the supplier know.
Not sure where to start with those that owe you money and those you owe money to? It’s second nature to me and I can help.