One of the side effects of the Great Recession that many small business owners didn’t foresee is that since 2008, people have simply taken longer to pay their bills. This is true on both the business and consumer side. Whereas someone might have paid a bill as soon as he/she received it in the past, now that person (or company) might take right up until the due date, or even a few days after (even if there is a penalty). Clearly circumstances have changed and so people’s habits will change. But that means you need to adapt as well – and you need to do it with a blend of pragmatism and diplomacy.
1. Check and calibrate your systems
Do you have a tried-and-true system for getting paid in your business? Can you track, on any given moment in any given day, what you have coming in within the next 15-30 days? Are you able to carry on billing and collections if a key employee is sick or away? If you can’t answer yes to all three of these questions, we need to talk about whether accounting is a key part of how you run your business (not how most of us think) or whether it’s an afterthought (numbers make many people’s heads spin – and hurt).
If you can answer yes to these questions, then check to see where the trend is going in your payments. Are people paying 7, 14, or 30 days late (or more)? Can you or should you adjust your cash flow – or does your current business operation (and/or credit line) not support that option? What can you do to adapt to the slow pay trend? Some owners have simply moved up timelines – instead of taking 3 payment installments, they are now taking 2 payments, etc. Others have adopted a pay-in-advance norm that they didn’t use to insist on.
2. Pick your battles
Part of the changes of a recession is that some businesses aren’t going to make it and will fail, and other customers who would have ordinarily been more faithful either cut back or fade away. Do you have a large customer who represents a substantial part of your revenue, who knows it, and is taking advantage of that knowledge to slow pay you? Have a conversation. Sure, the customer is always right, but it doesn’t mean you can’t express the challenges you have to face when they slow pay. If the relationship is a good one, hopefully they will understand, and try not to fall into the easy temptation of slow paying you.
3. Meet them halfway
We all know about the rock which hits the water and causes concentric ripples. In business we know that those concentric circles of the recession hit everyone. We know that if your business is having slow pay issues, businesses who you do business with may have them also. What’s worse is when those challenges get compounded by the fact that those businesses may be set up without systems (can you send me that invoice again, I can’t find the original), may be dysfunctional (did anyone bill the client for that last install?), or may be in trouble (we can’t have another bad month!). Have an honest conversation with those clients that you have relationships with. Would extending them some credit line (with interest charges) help them? Can you extend some fraction of your billing out to a 60 or 90 day length without penalty to them? Be creative!
Contrary to what the government and media want to tell us, those of us in the trenches know that the recession marches on. Instead of hoping for solutions to drop out of the sky or for promises from Washington that are often not delivered, we must adapt and do even better through these tough times. That’s how the best businesses survive. And thrive.