Hi and welcome to Audacious Conversations Live, a show where we provoke discussions on business and leadership.  Our conversations are aimed at SMEs, whether you do business from physical premises or you business is done online.

This week we are talking business growth.

Today I want to chat with you about money and specifically getting paid by your clients.  Warren Buffett is quoted as saying Rule #1: Never lose money and Rule #2: Never forget rule #1.  This is our discussion today.

This discussion was prompted by a number of situations we encountered as a business in 2016 with raising capital and clients not paying, requiring us to change our methods of working as well as the discussions I had with some clients who were experiencing the same challenges.  

Raising capital for a any business can be fraught with challenges and danger.  However, if done correctly and with the right help, there are advantages.  My experience has generally been a good one both in South Africa and in the UK.  

When raising capital, it has to be for the right reasons.  I have found many small businesses raise loans or extend overdrafts to cover cash flow issues, bad working habits, bad financial management, etc.  While covering cash flow is not generally a ‘wrong’ reason, cash flow issues are generally symptomatic of a deeper, underlying problem.

I have always believed in the value of external funding for any business for the right reasons, but have often cautioned clients against raising loans or extending overdrafts if there was not a solid business case.  Some business are on life support and a loan or overdraft is just prolonging that situation.  There is a case to let a thing die if it is died already.  Over the next few days I will be talking about how you can turn your business into a growth machine, so look out for those live broadcasts.

What has been your experience with raising funds for your business?  Do you use and overdraft?  Have you looked at alternative funding options outside of the banking sector?  It would be great to hear from you.  Please add your comments in the space provided below.

Getting Paid Does Not Need To Suck!

Warren Buffett Quote

Audacious Conversations – Lets Talk Getting Paid

Most clients I have worked with have, to a greater or lesser degree, struggled to get their clients to pay them on time.  This causes the obvious problems with cash flow and the potential knock on effects of you then not being able to pay your suppliers on time.  Clients stretch a 30 day invoice to 60 or 90 days or payment on statement conditions to paying at the next statement.  The stress this can cause is enormous and often results in sleepless nights.  Many years ago a good friend of mine was close to doing himself harm because of the cash flow issues late payments caused his business.

This is a challenge regardless of how robust your accounting system is or how good your term and conditions are.  There are so many factors that play into this issue from your clients own cash flow issues caused by their clients not paying to extreme cases of clients going into administration or liquidation.

We all know that cash flow and not cash is king, so what can we do to turn this situation around?  I have noticed the threat of legal action has very little effect, so what else can be done?  It would be good to hear from you what solutions you have that are working.

You could ensure you have enough working capital by using an overdraft or raising loans as I mentioned earlier, but that option costs you more at the end of the day and could have unintended negative effects you cash flow and could potentially hinder the growth of your business.

Does it work to give a discounted rate if payment is made in the 30 days term, for example?  That is an option I have seen used, but it is an option, in my opinion which devalues you product or service.  If you are doing the work and doing it well, should you not be paid full value at your asking price?  Why should you discount your rate?

You could have strict terms and conditions, which financially penalises late or delayed payments, but that requires a lot of work to manage and again could have serious negative and unintended consequences.

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We have implemented a ‘pay-to-play’ system.  That is our invoices are due up front and then we will deliver the work or commence developing the programs agreed on.  Although we still get people try to extend terms, generally it is working for us.  As of the 1st of Jan this year any new clients pay first.  Is that an option that could work for you?  We have taken this view based on the idea that if you go into a retail store, you take what you need and pay for the items before you get to use them.

How do yo deal with this issue?  Is it even an issue for you?  What advice would you have for business owners who do struggle to get their invoices paid on time?  How are you as a payer?  Do you try to stretch the terms of you are give as far as you can?  Are a part of the problem or are you a part of the solution?

I mentioned this quote from Warren Buffett at the top of the program Rule #1: Never lose money and Rule #2: Never forget rule #1.  Are you losing money through the capital you have raised and the non payment of of your invoices?

It has been great chatting with you today.  Please don’t forget to like, share and comment even after the show is over.  Please visit my website vicwilliams.net and I look forward to chatting with you again tomorrow on Audacious Conversation Live

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