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Your approach to the issue of late payments...

 
#1 Your approach to the issue of late payments...
21/02/2014 11:42

timborden

Hi guys, my name is Tim and I’m currently working on a project that is looking at what effect late payments from clients is having within the consulting industry.

I’d love to hear the thoughts of the group on the following:

1) As a business, what are your payment terms? And when do you actually get paid by your clients?

2) Do long/late payments ever cause cash-flow issues?

3) Do you ever have to chase payments? Is this a pain? How do you currently go about doing this?

4) Do you currently use any method of credit to cover cash-flow issues caused by long/late payments? (I.e. Overdrafts, credit cards, a loan facility)

5) On a scale of 0-10 (where 0 is no pain and 10 is the worst pain) how painful is the issue of late payments to your business?

Cheers guys, we are looking to get to the bottom of the issues caused by late payments in the industry - so any information you can provide would really help us tackle the problem!

Looking forward to your responses! :)

Tim

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#2 RE: Your approach to the issue of late payments...
21/02/2014 11:48

Bushy Eyebrow Partner to timborden (#1)

This is a very relevant topic, Tim. I'd be happy to contribute to your research however I can.

Late payments are a pain in the backside. It doesn't affect the business too much, but causes us stress. You wonder why they're not paying their invoice... are they unhappy, is there a problem? I suspect that clients sometimes deliberately delay payment of invoices pending a satisfactory outcome to the project, even if they have agreed to be billed monthly on account. The more they owe you, the more power they have over you because they know you'll have to bend over backwords to please them if you want the outstanding invoices paid. They like to "hedge their bets" even if that's not the payment terms they agreed to.

We often have to chase payments, usually when there is a lazy finance department involved and they blame people moving roles and suchlike. One client we had took 270 days to settle a fairly large invoice!!! When they came to us for the next project, I quoted them a day rate of £3,000. I kid you not, I really did quote them that. When the inevitable "WTF" response came back to us, I said we had to charge more to cover the financial risks associated with working with them - a risk premium if you like. Eventually they settled on paying a deposit up-front.

What I do now is raise the first invoice on day 1 of the project so that I get an early heads-up as to whether the client is going to be a tardy payer. They know the first invoice will be billed on day 1 so it's not a surprise to them.

If I know a client is a late payer for whatever reason, I put our fees up. We can't afford to spend hours arm wrestling with useless accounts payable departments.

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#3 RE: Your approach to the issue of late payments...
21/02/2014 11:59

presidentbartlet to Bushy Eyebrow Partner (#2)

Some large consultancies impose a "capital charge" on projects to cover the cost of labour which affects your bottom line. Provides a good incentive to send some poor analyst to sit on the desk of the finance guys until it's done!

NB Helps if the finance guys are male and the poor analyst is female and pretty

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#4 RE: Your approach to the issue of late payments...
21/02/2014 12:00

timborden to Bushy Eyebrow Partner (#2)

Thanks Bushy....your input is really appreciated. A couple follow up questions...if you don't mind.

Does the long/late payments cause cash-flow issues? Do you currently use any method of credit to cover?

Thanks again,

Tim

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#5 RE: Your approach to the issue of late payments...
21/02/2014 13:37

Bushy Eyebrow Partner to timborden (#4)

Hi Tim, late payment doesn't cause us cash flow issues because we usually actually accumulate cash as we go along (and then have a large chunk of it wiped out when we pay HMRC every now and then). A consultancy would have to be *very* illiquid to be having cash flow issues. The real problem is that it creates all sorts of uncertainty and stress and makes us start doubting whether we'll EVER be paid... that's the real issue, whether the client is happy and will eventually pay or whether there is some sort of hidden resentment or problem that's making them sit on the invoice.

Late paying finance departments think they're being smart but actually all they're doing is trashing otherwise good relationships.

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#6 RE: Your approach to the issue of late payments...
21/02/2014 14:18

timborden to Bushy Eyebrow Partner (#5)

Thanks Bushy.

We are a group of engineers who are looking to build apps for online accounting packages. The app would give you the ability to instantly ‘cash in’ any of your outstanding sales invoices, any time you like, from within your account?

Do you use online accounting packages? Would this be useful to you and your business?

Thanks again,

Tim

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#7 RE: Your approach to the issue of late payments...
21/02/2014 15:13

Bushy Eyebrow Partner to timborden (#6)

Tim, if you want to know of a very under-exploited market, have a think about building a decent time and expense recording add-on for Sage or something, which also does invoicing of consultancy services. There's b*gger all out there that's any good at time and expense recording for consultancies.

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#8 RE: Your approach to the issue of late payments...
21/02/2014 15:20

timborden to Bushy Eyebrow Partner (#7)

Awesome....thanks again for the feedback!

Tim

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#9 RE: Your approach to the issue of late payments...
21/02/2014 17:16

powernap to timborden (#8)

Sounds like a great idea - a less consolidated industry might be a better market for what sounds like automated invoice factoring... SMEs are particularly at risk of severe cash flow problems - http://www.telegraph.co.uk/finance/yourbusiness/10504363/SMEs-in-the-grip-of-cash-flow-crisis.html

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#10 RE: Your approach to the issue of late payments...
30/12/2014 07:33

David Cameron to timborden (#1)

Obviously , the late payments are the pain and we should get rid of it. I also face the late payment problems with the clients. So what I do is , while generating Invoices to the clients, I charge the late fine on them. I have an option in my invoicing solution of "late fine" which I use whenever the payment is late. I would also recommend all tyo use the Online Invoicing solution like "Invoicera" so to sent the clear record to the client that how much extra he is charged and why he is charged.

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